Understanding Goldman’s Price Action

Published on Tuesday, 12 January 2010 00:30 Written by Christopher Lynn

New York, Jan 12^th (TradersHuddle.com) – Shares of Goldman Sachs (NYSE:GS) traded negatively for the second consecutive day, bringing the stock down considerably today. The intraday low for Goldman Sachs stock touched the 50 day moving average, where it had a small technical bounce.

In order to understand Goldman’s price action, we need to immerse ourselves in the mind of the typical trader and how technical breakouts are handled by the investor’s physique.

Goldman’s stock held support and was trading in a very tight range for quite some time that resulted in a technical breakout when it first broke its downtrend and then confirmed it by breaking its 50 day moving average and now its Bollinger Bands are expanding as volatility continues to increase in the stock, this is important because the money is made when volatility grows.

Once a breakout materializes you will always have a big percentage of traders that missed the trade, and that after the move gains momentum it’s then too late for a discipline investor to establish positions. These investors are now considered potential buyers that will be waiting for the stock to come back down to the breakout level providing them a second chance.  This is why you always get the dynamic, of a retest of support after the breakout.

Goldman is now back at the breakout level, and traders will be paying close attention to it to see if support materializes and buyers of Goldman stock appear at the 50 day moving average.