Goldman Sachs Group, Inc. (NYSE:GS)
Goldman Sachs Group, Inc. (GS) recently revealed that it was investing $450 million into Facebook, Inc. in a deal that values the social media company at $50 billion. While much of the buzz was on the rich valuation placed on Facebook, it appears that investors saw the deal as a positive. GS gapped higher to kick off the New Year and also cleared the $171 level which had held it back on a few occasions.
In looking back at GS on a daily chart, one can see a clear pattern of higher highs and higher lows forming.GS dropped sharply through May and June this year, bottoming out in July.
While it hasn’t been easy to trade, GS has been steadily grinding higher. The initial stages of the move were sloppy and volatile, but the base that formed in November and December was much more orderly. Traders should watch the $171 level for support moving forward, but also realize that important resistance looms above near $190.
Select Sector SPDR (NYSE:XLF) ETF
Many other financial stocks also started the year on a high note resulting in a strong performance for the Select Sector SPDR (XLF) ETF. After a couple of head fakes in November, it appears that the breakout in the financials has been confirmed. XLF looked like it was going to fail near $14.50 in late November, but it quickly reversed and surged higher. It cleared its November high near $15.50 and has continued to press higher. While XLF is certainly extended at this point, its recent strength should be respected. Traders should watch key support near $15.50 as a possible area for support on weakness.
JP Morgan Chase & Co. (NYSE:JPM )
JP Morgan Chase & Co. (JPM ) is one of the individual banks helping push XLF higher. JPM spent the second half of 2010 working on a large base after pulling back from fresh recovery highs in April. JPM was able to clear this base in late December and successfully pulled back to test the breakout level near $42. It kicked off the New Year with a gap higher and confirmed the base as support. JPM could be on its way to test its 2010 highs near $48 soon.
Bank of America Corporation (NYSE:BAC)
Bank of America Corporation (BAC) is another bank that kicked off the New Year with a bang. BAC was actually the best performing stock in the S&P 500 on the first trading day of 2011 as it surged over 6%. BAC had been one of the worst performing bank stocks for the majority of 2010 but it did manage to form a double bottom late in the year. It confirmed the double bottom by clearing the neckline near $13. After a few narrow range days, BAC confirmed the base by surging higher. BAC is also currently above an important level near $14. While BAC will likely need some time to continue rebuilding its price pattern, it does appear that the worst is over.
The financials were the group holding the markets back last autumn, but once they started to rebound it helped give the markets a sharp boost. While the S&P 500 is coming into some stiff resistance, the recent action in the financials is revealing some enthusiasm for the sector. This group remains very important to watch despite the clear leadership coming from other sectors like technology. As the catalyst for much of the bear decline, many investors are still wary of this group. A sustained move coupled with the recent bases would go a long way towards inspiring confidence in traders.
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