Goldman Sachs Completes Head and Shoulders Top

Goldman Sachs Group Inc. (GS) is trading lower by 4% in Tuesday’s pre-market after missing Q4 2021 earnings-per-share (EPS) estimates by a wide margin. The Wall Street icon posted a profit of $10.81 per-share, $1.07 below expectations, while revenue rose 7.7% to $12.64 billion. The company chatted up investment banking and global markets revenue in the release, forcing analysts to wait for the conference call for an explanation of the profit shortfall.

Fixed Income Trading Slowdown

The stock topped out in August 2021 after more than tripling in price since the March 2020 low, with gains fueled by investment banking booms in the IPO market and mergers and acquisitions group. It fell into the red for 2022 last week, selling off in sympathy with Dow component JPMorgan Chase and Co. (JPM) and Jefferies Financial Group Inc. (JEF) after both houses missed revenue estimates due to a slowdown in fixed income trading.

Bank of America Securities analyst Ebrahim Poonawala downgraded Goldman to ‘Neutral’ when the calendar flipped into January, expecting “a tougher revenue growth backdrop for the capital markets business on the potential for moderating trading activity and deal-making after a record year for IPO and M&A activity. He also warned that “secular re-rating in the stock on the back of revenue diversification (away from capital markets) is likely to be a multi-year event.”

Wall Street and Technical Outlook

Wall Street consensus now stands at a ‘Moderate Buy’ rating based upon 16 ‘Buy’, 1 ‘Overweight’, 10 ‘Hold’, 0 ‘Underweight’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $330 to a Street-high $598 while the stock is set to open Tuesday’s session more than $90 below the median $462 target. This placement tells us that Goldman is still working off long-term overbought readings after extraordinary gains into the summer of 2021.

Goldman Sachs returned to the 2007 high at 251 in 2017 and failed a breakout attempt in 2018, ahead of a steep decline to a 7-year low during March 2020’s pandemic decline. It finally mounted long-term resistance in January 2021, entering a powerful advance that topped out above 400 in the third quarter. Price action has completed a head and shoulders top since that time, with a breakdown through 365 favoring a steeper slide into the psychological 300 level.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.