Friday, June 25, 2010

Goldman Sachs Stock: $130 Is Critical Support To Watch

Those who follow Goldman Sachs (GS: 134.98 0.00 0.00%) chart moves are undoubtedly aware of the importance of the “Support Shelf” at $130.00.
Let’s take a look at why $130 is critical support to watch for this leading financial stock - and what it might mean for the market if support holds… or breaks.
First, a price purism look at the weekly chart to see the importance of $130:

The $130 per share level reflects the prior swing low from June and May 2009 - that doesn’t make it magical, it only gives us a prior price swing low to reference.
Once price broke under the February 2010 low at $150, we then looked to target the prior swing low at $130 for a downswing which has now occurred - now we rest at that target level.
From a pure price perspective, a break under $130 sends the next price support target to the March swing low at the $70 per share level, as the move up was a singular swing without reference lows like those which formed in June.
That’s why I’m calling this a “Support Shelf” - or Edge of the Cliff or whatever colorful name you want to use.  The main idea is that buyers have to hold above $130… or we could see a positive feedback loop send price much lower over time.
The daily chart offers a glimpse into a possible support bounce ahead for the stock…

We see the potential for a short-term triple bottom price pattern at the $135 level as shown.  Price has formed a lengthy positive momentum divergence in the 3/10 Oscillator as well - that’s bullish.
So we could very easily see a bounce higher in the stock, but we need to see a break and close above $140 then $145 to expect a move back to $150 or $160.
That’s why the $130 to $135 level will be so important.  If bulls cannot support off the weekly level and parlay a triple bottom pattern with a lengthy positive momentum divergence into a bullish price swing up… then we most likely will see a further sharp deterioration in price.
What is the alternate short-term technical pattern?  Instead of a triple-bottom as shown, one could label a short-term descending triangle pattern with upper trendline at the $137 level.  That will be something to watch as well.
It doesn’t really matter what the pattern is if we start to see a price break under $130 - so for investors and traders in GS, watch this level extremely closely.

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