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After peaking in mid-February, stocks have had a rough month.
And none more so than banks…
Goldman Sachs (GS) rallied around 28% from just prior to President Trump’s win to its top on February 18. But it has handed back those gains in three weeks…
The initial excitement about a pro-business president in the White House has evaporated into thin air.
Investors have abandoned GS (and other financial stocks) due to recession fears, causing stock prices to tank.
But big sell-offs can present opportunities to traders. We just need to wait patiently on the sidelines for the chance to pounce.
And with GS’s selling now reaching a critical level, let’s see how things might play out from here…
Diverging Pattern
GS initially gapped higher after Trump’s win.
Then it rolled over and slid into the end of last year. But by the time we hit 2025, GS surged again. It rallied 20% from its January 13 low.
But as GS was making higher highs (upper orange line), buying momentum was flatlining (lower orange line). When we see a divergence like this, a change of direction is often in the cards:
Goldman Sachs (GS)
Source: e-Signal
GS reversed sharply as the Relative Strength Index (RSI) plummeted from overbought territory (upper gray dashed line).
During that fall, GS initially tested and held the 50-day Moving Average (MA, blue line) – an important level. However, that proved to be short-lived.
As the RSI sank into the lower half of its band, the selling in GS resumed…
You can gauge the strength of that down move by the sharp angle that the shorter-term 10-day MA (red line) crossed and tracked below the 50-day MA.
That move has also seen GS “fill in the gap” from Trump’s win…
But coming recession or not, markets never move indefinitely in a straight line.
And the chop back and forth can allow nimble traders to bank some handy gains.
That’s what I’ll be looking for with stocks like GS that have recently sold off heavily.
But before committing to any trade, we need to see some definitive signals. And that’s what I’ll be looking for from here…
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Looking for a Strong Setup
When buying momentum is steadily dropping, the stock price is going to eventually fall too.
On the flip side, we need to see buying momentum turn higher to see a rebound.
The RSI forming a “V” and rallying from oversold territory could set off a nice, sharp bounce.
But there’s something else I’m watching that would give greater weight to any potential trade…
As the chart shows, GS’s heavy fall has it near a support level (green line). GS rallied from this level after Trump’s win in November.
Take another look:
Goldman Sachs (GS)
Source: e-Signal
If that level holds while the RSI rebounds from oversold territory, that could provide a strong setup for a long trade.
Yet given the great speed of stock movements lately, a nimble trader should take their profits off the table in quick time.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict