Goldman Sachs Drop Imperils S&P 500 Advance: Technical Analysis

By Elizabeth Stanton
Feb. 4 (Bloomberg) -- Goldman Sachs Group Inc.’s decline below its average price in the last 200 days and the stock’s failure to rally to new highs since October are stoking bearishness among technical analysts.
While the biggest U.S. securities firm generated record profits in 2009, concerns about government proposals to curb speculation at banks pushed its shares below the 200-day moving average last month. Analysts who base predictions on price and volume charts say that means gains will be harder to come by for Goldman Sachs and the Standard & Poor’s 500 Index.
"I’ve never seen a market do well with the investment banks suffering," said David Nicoski, chief technical strategist at Vermilion Capital Management LLC in Edina, Minnesota. "That doesn’t mean the market has to go down, but it does mean the best-case scenario is that it moves sideways."
The S&P 500, which has fallen 4.6 percent since closing at a 15-month high on Jan. 19, isn’t likely to rebound until the New York-based firm breaks out of its pattern, he said. Goldman Sachs’s shares have lost 5.8 percent during that period.
Ed Canaday, a New York-based spokesman for the company, declined to comment.
Goldman Sachs gained 304 percent during the five-year bull market that began in October 2002, compared with a doubling in the S&P 500, data compiled by Bloomberg show. It climbed 270 percent between November 2008 and October 2009, compared with the S&P 500’s advance of as much as 70 percent between March
2009 and last month, data compiled by Bloomberg show.

Bank Proposals

The 200-day average was breached on Jan. 22, as financial companies slumped on President Barack Obama’s call for limits on their size and trading activities. Goldman Sachs climbed 0.2 percent to $157.23 yesterday, rising for a third day.
John Schlitz, chief market technician at Instinet, said he’s "carefully watching" the company’s 50-day moving average, which will fall below the 200-day mean in about two weeks if the shares resume their decline from last month.
"You can make a pretty good bet that if Goldman Sachs is declining, the market will have trouble," Schlitz said in an e- mailed statement.
The company’s underperformance of the S&P 500 is bearish, said John Roque, chief technical strategist at WJB Capital Group Inc. in New York. The shares are down almost 15 percent since Sept. 30, compared with a 3.8 percent gain for the index.
Goldman Sachs is "broken on a relative basis versus the S&P 500," Roque wrote in a Jan. 25 report and repeated in an interview yesterday. Roque on Jan. 27 recommended investors sell shares of Goldman Sachs and Morgan Stanley, its smaller rival.

‘Out of the Woodwork’

"Defenders of the stock will likely come out of the woodwork," Roque wrote on Jan. 25. "These folks should be ignored."
The company declined 4.1 percent on Jan. 21 even after reporting 58 percent more per-share profit excluding some items than analysts estimated on average. Net income was a record
$4.95 billion during the fourth quarter.
Goldman Sachs’s technical condition is worse than any of the market’s other leaders, a group that includes General Electric Co., 3M Co., Apple Inc., and Amazon.com Inc., Vermilion’s Nicoski said.
Vermillion wrote in March 26 note that charts were showing "broad-based" support that was "extremely positive" for the U.S.
stock market, while short sellers demonstrated "a significant amount of nervousness." The S&P 500 has rallied more than 30 percent since the statement was published.
"The tide right now is coming out of Goldman because each successive rally has been followed by a rally that has not taken it to a new high," Nicoski said. "This is going to be troubling for a technician."