Here's the text message I left for D an hour and a half before the market opened yesterday, before leaving to pick him up from work:
"178.5 - Support on GS daily chart. Bearish both hidden and classic divergence on monthly, weekly and daily charts. Negative news and sentiments all over. Candlestick pattern also pointing towards a south-bound GS."
And this is GS' daily chart from May to yesterday:
GS' intraday chart from yesterday:
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Now back to GS 24 Jun 08 (Today).
On GS' monthly chart, these are the 2 consecutive bearish divergences which I hadn't the time to capture yesterday:
There's clearly a divergence for the period spanning Jan07 and May07 (prices reached a higher high on an upward move while MACD failed to do the same), followed by another one for the period between May07 and 0ct07. Both indicate the possible end of the upward trend that started in 2003. And indeed GS began to slide first in June, taking GS down to a fib level midway between 61.8 and 50. The 2nd correction takes GS down to below 61.8, and today, GS is sitting on 61.8 retracement level. Given the generally negative sentiments over financials, a sector that's taken a beating from a credit problem that doesn't seem to get any better, GS might just retrace further and consolidate, or reverse to a downward trend.
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On GS' weekly chart - Following Oct 07, the weekly chart shows GS going through a period of consolidation from mid Oct to Dec 07 with price hovering in the high range of 201 - 250.
We first see a bearish divergence for 5 - 12 Nov 08, indicating a possible end of the upward move from Sept 07. Indeed price fell to 140 in Mar 08 from Nov 07's 238. In the 2nd week of Apr, we see price going up after 3 weeks of consolidation.
On the week of 28 Apr, GS closed at 200. Here's where a bearish HIDDEN divergence is seen forming - MACD is at a higher value on 28 Apr while GS is at a lower value (when 12 Nov 07 is used as the point of reference) - indicating that the DOWNTREND that began in Nov is likely to continue. Hence I tend to think that the rally in the 2nd and 3rd week of June is but merely a correction in a continued downward move.
On the weekly chart below, the red line shows where the bearish divergence is, and the blue shows the HIDDEN divergence.
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On GS' daily chart - We see a bullish divergence for the period 23 May to 11 Jun, and GS indeed reversed from a low of 161 on 11 Jun into an upward move the day after 11 Jun to close at 187 on 19 Jun.
Zooming out, we see a bearish HIDDEN divergence for the period 2 May - 19 Jun - and this tells me that the downward trend that began on 2 May is going to continue and that the rally from 12 - 19 Jun could be just a minor correction in the downtrend.
On the daily chart below, the red line shows where the bullish divergence is, and the blue shows the HIDDEN divergence.
Zooming out further on the daily chart, we clearly (ok i notice the paradox) see a bearish HIDDEN divergence for the period spanning the end of Oct 07 and 19 Jun 08.
The way I look at this is that the downward move from end Oct 07 is going to continue for a long, long time, and as far as the next few days is concerned, my take is that GS is going down or sideways, not particularly in that order though.
The daily chart below shows the hidden divergence:
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