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Goldman Fails At Broken Support

03/14/07 11:04:17 AM
by Arthur Hill

Goldman Sachs failed to move back above broken support on the latest rally, and a continuation lower is in the cards.

Security:   GS
Position:   Sell

Goldman Sachs (GS) broke support with a gap down and sharp decline in late February (Figure 1). The move also broke the 50-day moving average and occurred on high volume. The combination of support breaks and high volume points to a trend change for this key stock. The gap down should also be considered a breakaway gap as long as it remains unfilled. Breakaway gaps start new trends, and a new downtrend is underway as long as this gaps holds.

FIGURE 1: GOLDMAN SACHS, DAILY. GS broke support with a gap down and a sharp decline in early February.
Graphic provided by: Telechart 2007.
Broken support turns into resistance. This is a basic tenet of technical analysis, and traders should be on guard when a stock returns to broken support. GS actually established a support zone around 208–210, and this support zone turns into a resistance zone. The 50-day simple moving average (SMA) offered support during the advance, and this indicator now marks resistance. Both the support zone and the 50-day affirm resistance around 208–210, and this is the level to beat.

FIGURE 2: GOLDMAN SACHS, DAILY. Resistance is now around 208–210, which is reinforced by a bearish engulfing pattern.
Graphic provided by: Telechart 2007.
Resistance around 208–210 is further reinforced by a bearish engulfing pattern on March 13 (Figure 2). The stock opened strong and closed weak to totally engulf the prior white candlestick. High volume validates this bearish candlestick reversal, and I would now expect at least a test of the early March low. Given the depth of the prior decline, traders should not rule out a decline to the next support level around 184.

Arthur Hill

Arthur Hill is currently editor of, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for and the main contributor to the ChartSchool.

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