Considering shares of Goldman Sachs are about 40% higher over the past 6 months, can the stock possibly have more room to run?
With a resolution to the fiscal cliff becoming more likely, conventional wisdom would suggest the answer is yes.
After all, Europe's financial woes don't seem to be as bad as feared. And China's slowdown isn't as bad as expected.
But is it all baked in – already?
Although Jim Cramer picks stocks based on fundamentals, he also believes there's merit to examining charts and extrapolating patterns– something called technical analysis.
The following technical analysis was provided by Bob Lang, a Cramer colleague at RealMoney.com.
Although Goldman has had a decent run over the past 6 months, patterns in the charts suggest to Lang that gains are far from over. Here's why:
1. W-Pattern. Goldman has made what Lang described as a great looking W bottoming pattern. It's called a W pattern because it looks like the letter W—and this is one of the most reliably bullish formations out there. In short, after a stock makes a W pattern, it tends to move up very sharply.
2. Breaking Out. Recently shares pierced $125 a strong level of resistance or ceiling. If the stock can stay above $125 through the end of the week, then Lang believes it will be smooth sailing until the next resistance level at $140. And if Goldman crosses the $140 line, then Lang could see the stock running up to the $170 area, which is around where it peaked in 2011.
3. Strong Base. Goldman had a big rally over the summer. Then, for the next three months or so, the stock traded sideways, digesting the move and building a base. For Lang, that base is like a springboard for the stock to ultimately go higher.
4. Moving Average. Goldman Sachs is now above all of its key moving averages—the 200-day, the 50-day, and the 10-day. These are long, medium and short-term measures of the stock's trajectory, and chartists love it when a stock goes over these lines, they see it as a big green light.
5. Volume. On days the stock gained, volume was very strong - that's a classic sign that big institutional players are accumulating shares. And when big players buy, it typically generates powerful fuel for a stock to go higher.
6. Moving Average Convergence/Divergence line or MACD. This indicator is a little wonky – it detects shifts in a stock's trajectory and this indicator has made a 'bullish crossover'.
What's the bottom line?
The charts, as interpreted by Bob Lang, paint a downright beautiful picture. And they seem to confirm the fundamentals – that Goldman Sachs has room to run.
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