GS And USO

In mid-December, 2008, when I described the "sea change" that we were witnessing in the market, I dubbed Goldman and Morgan my poster children for "Bad News Is Good News." In the late 2008 market Smackdown, if there was even a hint or a rumor of a problem, a company got whacked. But, when Goldman and Morgan both reported horrible earnings in mid-December, and when both stocks broke out of patterns to the UPSIDE, that gave us a very strong suggestion that the worst was over for these stocks for awhile, and likely over the market, in general.

When the general market fell to the the SPX low of 666 in March, for example, Goldman not only was showing a strong postive divergence, it was finding DOUBLE support at the bottom of the channel off the November low (in black), and at the bottom of the Bull Flag/Falling Channel, at Purple Data Point #4.

Against the ugliest economic backdrop since The Great Depression, Goldman has rallied 206% off its November low, and Morgan is up 350% off its Octber low. Whew!

In the current time-frame, Goldman is rallying in a Bearish Rising Wedge on the lowest volume since September, 2008, which is a "red flag," and it's done it against "sell" signals, which often are misunderstood, like the MACD.

As we've discussed before, we never allow indicators to TELL US to buy or to sell. On April 17, when Goldman was at $120, the MACD had put in a negative divergence, and had fallen below its signal line. That "can be" a sell, but be very careful with that when a stock is as strong as Goldman was.

Look at the chart. That "sell signal" came while Goldman was trading in the Bullish Falling Wedge, right after it reported that it would issue shares at $123. The technicals (MACD) and fundamentals (share issuance) "looked like" the stock was going down, but LOOK at what it actually did. Goldman found support just above the channel (in black), broke out above the Bullish Falling Wedge, and those upside targets got MADE.

That's when we hear, "Technical analysis doesn't work!" It worked just fine. The MACD "invited" us to sell, but the MACD didn't have a clue what the chart looked like. The successful retest of the channel was bullish. The breakout of the Bullish Falling Wedge was bullish.

The next cross below the signal line in the MACD came on May 13, at Black Data Point #2. It not only wasn't a sell, it was a short-term low.

The next "sell signal" in the MACD, the "Kiss of Death," came on May 20. That particular signal "can be" deadly, depending on what the chart looks like. In this case, Goldman lost only $2.00 at the open the next session, then ralled $9.50. How many times have we referred to Golman as "The Stock That Refuses To Die?" LOL.

The MACD currently is bearishly positioned below its signal line, and is rallying back to it for another possible "Kiss of Death" signal if it fails at/near its signal line. If that should occur, especially if it's coincident with Golman failing at/near the top of this Bearish Rising Wedge, the stock could be in for some downside.

Let's look at an example of that, USO.

On Wednesday, USO poked through the top of this Bearish Rising Wedge, but closed below it on a near-perfect Doji Star Hangman. Look at the Dragonfly Doji Star in March, at Blue #1. The gap down the following session, below the low of the Dragonfly Doji Star, was a pretty good indication of some downside.

If anyone shorted Wednesday's Doji Star Hangman, with a stop above the 34.94 high of that candle, I sure couldn't argue with it. Excluding a horrible gap up, that's a nice risk:reward.

The trade didn't work, though. The USO gapped up to 34.97, above the prior day's high, stopping it out for a small loss. Not bad.

Yesterday's rally high, interestingly, was within pennies of the top of the channel, and also within pennies of where Leg CD equals Leg AB. The top of the channel was drawn by creating a trendline that is exactly parallel to the bottom of the channel, the slopes of which are 0.084. We could get a reversal here, but I'm not going to assume that. Goldman traded in a similar channel earlier this year and broke out of it to the UPSIDE in March.

Back to Goldman...admittedly, it looks vunerable here. Bearish Rising Wedges tend to have a bearish resolution. The volume as the stock has moved higher is weak, and the MACD is weak. Worth watching. The trendline at the top of the Bearish Rising Wedge in Goldman comes in today, May 29, at 147.747. The rising slope of that trendline is 0.4125 per day, so add that amount each day. It will come in at 148.16 on Monday, June 1.