Goldman Sachs Group Inc (GS) Poised To Breakdown Following Bearish Sell Signal

buyers and sellersDavid Becker: Goldman Sachs Group (NYSE:GS) gapped lower on Monday and continued to trade down on Tuesday.  Financials have been under significant pressure following announcements by JP Morgan, which puts into question trading revenues for financial companies in the second quarter.

Future Earnings

JPM reported its equity and fixed-income trading revenue could continue to decline by nearly 20% as compared to this time last year.  This announcement reflects only the first month of the second quarter, which does not bode well for financials stocks. In 2013, trading generated $15.7 billion for Goldman Sachs or about 46 percent of the firm’s total.

Additionally, financials usually generate revenues from borrowing short and lending long.  They can accomplish this when long-term interest rates increase relative to short term interest rates.  Unfortunately, the interest rate curve between the 2-year yield and the 10-year yield has been narrowing, which further creates headwinds for financial stocks.

Momentum on Goldman Sachs Stock 

A sell signal was generated by the MACD (moving average convergence divergence) index.  This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.  The MACD is an indicator that pin points changes in momentum.

The MACD index moved from positive territory to negative territory confirming the bearish MACD sell signal.

Earlier in May, a new long-term trend was initiated as the 50-day moving average crossed below the 200-day moving average.  This crossover is known as the “death cross” and signifies that a long term down trend is in place.

goldman-sachs-stock

Goldman Sachs gapped down, on Monday, as financial stocks sold off.  A second gap below trend line support would create a breakdown gap, which usually occurs with heavy volume.


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