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Goldman Sachs Breaks Down from Head & Shoulders

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Goldman Sachs Inc. (GS) moved more than 4% lower on Tuesday after a disappointing first quarter earnings report. The iconic investment bank posted revenue that rose 26.7% to $8.03 billion and net income of $5.15 per share, but fell short of analyst estimates calling for about $8.5 billion in revenue and earnings of $5.35 per share. The primary culprit behind the under-performance was trading revenue that was flat for the quarter.

Low volatility in the EUR/USD currency pair and crude oil hit the bank’s trading revenue due to its relatively large commodity business. It didn’t help that JPMorgan Chase & Co. (JPM), Citi Inc. (C), and Bank of America Corp. (BAC) all reported double-digit gains in trading revenue, which led to higher expectations for Goldman Sachs’ first quarter financial results. The good news is that many analysts remain confident that the bank can bounce back.

On a technical level, the stock looks a bit more bearish over the long-term. The stock recently completed a head and shoulders reversal pattern by breaking below the neckline with today’s decline. A sustained move below these levels on high volume could signal a long-term downtrend from a technical standpoint. Traders should watch the 200-day moving average at $202.45 or the psychologically-important $200.00 level for near-term support.

Goldman Sachs is still likely to benefit from decreased regulation under President Trump’s administration, which sparked the stock’s rally from $160.00 late last year to more than $250.00 per share last month. With these fundamental benefits intact, traders should carefully evaluate how far the downtrend is likely to continue, particularly in the context of a relative strength index (RSI) that’s falling sharply into oversold territory.

Charts courtesy of StockCharts.com. Author holds the stocks mentioned in index funds.

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