Goldman Sachs Shares Signal S&P 500 Rally to Continue: Technical Analysis

Goldman Sachs Group Inc.’s advance above its average price in the last 200 days and the likelihood that its shares won’t fall to lows bode well for U.S. stocks, said Christopher Verrone at Strategas Research Partners.

Shares of the most profitable securities firm in Wall Street history climbed above the 200-day moving average this month for the first time since March, when it stayed above the measure until mid-April. Since its 2010 low on July 2, the stock has risen, making higher peaks and higher valleys.

Goldman’s bullish trend suggests financial stocks may rebound soon, helping extend the Standard & Poor’s 500 Index’s best September and October performance in 12 years, said Verrone, lead technical analyst at Strategas. Financial shares ranked second in weightings among the benchmark’s 10 groups after technology, and were the only loser in the past six months.

“When we see the trend starts to improve for bellwethers in the financial sector like Goldman, it gives you some confidence that the market is beginning to treat these financial stocks a little bit better,” Verrone said in a telephone interview from his office in New York. “That’s a major group and it’s important for that group to at least participate if the rally is going to extend into 2011.”

The S&P 500 Financials Index tracking 81 companies has fallen 4.9 percent in the past six months after new regulations following the worst financial crisis since the Great Depression require banks to reduce risk taking while concerns grew that the industry face more losses from bad mortgages. During the same period, the S&P 500 added 4 percent.

Industry-Group Leadership

Goldman and other financial shares led during the first year of the bull market. While the S&P 500 jumped 69 percent from a 12-year low on March 9, 2009, Goldman surged 128 percent and the financials index rallied 145 percent. Since then, the group has surrendered its leadership and become a drag on the market.

There are signs that the industry’s price trend is improving, Verrone said. The S&P 500 financials index yesterday crossed above its 200-day average after failing to sustain above that threshold in three attempts since May. Goldman’s momentum is picking up, with the 50-day average about 0.6 percent below its 200-day average, according to Bloomberg data.

The group “is at an important inflection point,” Verrone said. “Anything you get from financials, that really helps the cause even more.”

To contact the reporter on this story; Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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