Goldman Sachs

Goldman's rally with just 21 minutes remaining in the session came too late, was too weak, and too suspicious for us to expect much (if any) follow-through when stocks begin to trade Monday morning. Note in the accompanying chart that the bounce occurred within 0.09 points of an in-your-face Hidden Pivot. On the hourly chart, however, buyers would have to run the stock all the way up to 185.51 to put the minor trend back on a bullish track.

Our key bellwether has bounced robustly from Wednesday's lows, although it did not quite come "roaring back" as the stock has done so many times in the past.  That said, the afternoon stage of yesterday's rally was strongly impulsive, since it surpassed three peaks, including the required "external".  That implies that any pullback from the next peak would be a screaming buy.  Hidden Pivot aficionados might be interested to know that the impulse leg is not as powerful if you display it on the hourly chart. That's because it changes the values for #2 and #3 tops so that they are equal.  In that light they would both be "internal" highs, and so the rally would not qualify as truly impulsive.

We spotted the ugliness unfolding in this stock in real time yesterday during the weekly tutorial session. Goldman was trading around $184, down moderately on the day, but a bearish target at 179.70 beckoned like a magnet.  The stock dove for that number in the final hour, sinking along with most other stocks, and it looked for a short while as though our target would contain the plunge precisely to-the-penny.  Alas, when the support gave way eleven minutes later, after the stock had bounced to 180.38, stop-loss orders sent GS plummeting a further 60 cents in a trice.  Here's my outlook, posted in response to a query in the Rick's Picks forum:  I shun dramatic predictions and those who make them because they are wrong perhaps 97% of the time.  That said, I am alert to the possibility that Goldman's top last week could mark the psychological turning point that eventually will bring about the dropping of the banking system's other shoe.  From a technical standpoint, Goldman will create a menacing, bearish impulse leg on the hourly chart -- its first in as long as I can recall -- if it dips below 173.16 this week.

Goldman's sleazy, predatory handlers may be running out of ways to fool us into thinking it may be over for the stock. The air pocket from 193.60 has been gut-wrenching for bulls, to be sure, but the stock would need to fall, without a corrective interruption, below 173.16 to create a convincingly bearish impulse leg on the daily chart. We shouldnt' rule out that possibility, but until it happens we are obliged to give the benefit of the doubt to a rally that has been nearly relentless for nearly a year.

The island gap deposited on Goldman's chart yesterday was a relative sneeze compared to what would happen if the stock were to get anywhere near Jim Cramer's $240 target (which, to remind you, is well above mine at 213.62). Notice in the chart that a mere $25 thrust would surpass three external peaks on the weekly chart. At that point, bears could kiss the cruel and seemingly irrational world of Wall Street goodbye and run for the hills. Most immediately, the stock looks bound for at least 201.67, provided it can get past a midpoint at 193.39 by a bit more than the 193.60 high recorded yesterday.

Close but no cigar. Goldman opened on a short-squeeze gap that came within 74 cents of our target -- not close enough to get us short using the strategy that was recommended. We'll set the trade aside, but I should mention that anyone who was  long coming in yesterday might have used what I call a "dynamic trailing stop,"  keeping risk and reward in a 1:3 ratio at all times. This means that when the stock came within 74 cents of the target, an implied trailing equal to a third of that, or 25 cents, would have been in effect. I read it as moderately bearish that Goldman fell so hard without having achieved the target. Since the stock is a key bellwether for the market as a whole, we'll need to monitor its further progress/regress closely.

Catching a ride north with the strategy I advised here yesterday would have required a nimble and alert response in the wee hours; however, the potential short from 192.91, the Hidden Pivot target flagged in the same tout, still beckons.  As of early Wednesday evening, the little sonofabitch had wafted as high as 191.50, so there's not much further to go. To initiate the short, I'd suggest buying two November 180 puts (GPYWP).  I'm guessing they'll be trading for around 4.60, but I'll suggest monitoring the bid/asked for the Nov 180 puts as Goldman closely approaches the target.  You should stop yourself out of the position if the stock trades above 193.10.  More-experienced pivoteers can attempt shorting with camouflage after the stock hits or nears the target. This would entail initiating the trade on the first a-b-c pullback from near 192.91.

The selloff from the recent high at 188 should be viewed as constructive, since it has followed the creation of a bullish impulse leg on the weekly chart. That said, Goldman has its work cut out for it, since the next push would have to reach a minimum _____, exceeding an important peak recorded in _____, to refresh the bullish trend. A more important peak at ______ holds the key to whether the stock can pull the broad averages higher for the remainder of 2008 -- and, probably, much of 2009.

If our favorite market bellwether is to point the way higher for the broad indices, the current weakness should go no lower than ____, a midpoint support tied to a 'd' target at _____.  A bullish reversal and final top above $190 would still be possible on a pullback to _____, but that would strongly suggest that the rally would be Goldman's last gasp.