Goldman (GS) broke out to the upside in December and the upside target of 174.80 from the October breakout got MADE. On the reporting of earnings in January, however, GS reversed back below the December breakout on a gap down.
Recently, GS has been rallying back to the area of the breakdown, which is the horizontal blue line, and also the January earnings gap area. When stocks are rallying back to a breakdown area, that "should be" resistance to any further upside advance and I look for shorting opportunities.
Early this morning, GS broke below a Head & Shoulders Top (pattern in white) basis this 10-Minute chart. I shorted it just below the breakdown. When that occurs, we don't want to see a stock rally back above the neckline (white horizontal line) if we're short, and we really don't want to see the stock get back above the high of the Right Shoulder (white arrow). If it does, that's showing much more strength than we want to see and it's usually wise to cover a short position, which is what I did. I covered a bit below the high of Right Shoulder for about a $550 loss.
When a trade doesn't work out, I find that one of most difficult things to do is to reverse and play the stock in the oppositie direction. We tend to fear having another loss, back-to-back, but if we have a well-founded basis for making our decisions, we can put fear aside and make the play.
After rallying back above the neckline and threatening to take out the high of the Right Shoulder, GS pulled back to the neckline area (166.78-166.84) and held pretty steady. Given the show of strength after the H&S Top breakdown, I bought GS at 166.84. My stop loss in case that trade also didn't work out was the morning low, at 166.26.
Fortunately, the second trade worked out fine. GS took out the high of the Right Shoulder (white arrow) and I "sold into strength" and turned my morning loss into an overall gain.
I took a break after I sold, so I didn't continue watching the chart, but look what GS did after I sold: It rallied to a new high on the day, then sold off and found support at the high of the Right Shoulder (yellow arrow)! That's very, very nice, technically. "Former resistance became support," just as it should, and GS went on to make another new high on the session, then cruised sideways into the close, consolidating the day's gains.
Gain on the two trades: Roughly $250.
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