19 Jul GS: Anticipating the swap bump
The Goldman Sachs Group Inc., founded in 1869, continues to offer long-term growth and upside potential, despite recent political interference and intermittent plunges. Goldman’s recent volatility should be construed as a golden fleece, without a tragic ending, providing strategic timing for investors/traders seeking long-term growth on equities within the banking sector.
New York-based Goldman offers its worldwide investment banking, securities and investment management company through four segments: investment banking, institutional client services, investing and lending and investment management. Goldman’s primary year-to-date income — more than 70% — stems from trading and investments, specifically lending to institutional clients such as hedge funds and high-frequency traders.
Unlike its competitors, it has limited its exposure to investment financing within energy-based entities and sectors. This intrinsic insulation, which has been ahallmark of Goldman’s growth power and previously recommended as a long holding, has continued to keep it in a position worthy of accumulation.
Goldman had been in a strong ascending pattern since President Donald Trump’s election. Passing through resistance levels at $219 and $232 before settling on a continued base-building area between $237 and $242 during March 2017.
Following a correction and retraction with a plunge to $235 and then $227, Goldman stock reversed higher through its 50-day moving average around $232 and rallied to a new high of $255.15. Shares have since plunged 20% from that high set in early March, as promised tax cuts and regulatory relief have stalled. The stock began crossing its neckline set in early May at $226, which was reflective of a bearish “head-and-shoulders” signal, subsequently followed by a plunge to an intraday low of $214.08.
Goldman’s recent weakness stemmed from international bond purchases positioning Goldman in the middle of a political storm when it was revealed that its asset-management division acquired $2.8 billion of 2022 October bonds issued by Venezuela’s oil Co. PDVSA on the secondary market, rather than directly from the Venezuelan government. Goldman’s activity, which has been similarly enacted with other discounted sovereign bonds including those from Greece, was met with opposition from anti-Venezuelan U.S. Congress members accusing Goldman of aiding and abetting the country’s dictatorial regime.
This was a primary culprit for Goldman’s stock sinking to $212. Keeping in mind that Goldman is not alone in this practice, operating with sound business judgment abiding by “ex fida bona,” as other discounted deals have been derived by similar global asset management firms, most notably Nomura Securities purchasing $100 million of Venezuelan government bonds.
With exposure to Venezuela no longer a serious threat, investors have an opportunity to take advantage of these momentary dips in Goldman stock as its price-to-earnings ratio has fallen way below its peers. Goldman’s May low of $211.26 could serve as a long-term bottom (see “GS technicals looking up”). The stock faces primary resistance at $224 and secondary resistance at $232. Base-building and short covering could challenge its upper-head resistance at $239. Though technicals still appear weak, it is not a good idea to bet against Goldman as it has friends in high places.