Goldman Sachs Group, And The Market, Appear To Have A Little Farther To Rise

Shares of Goldman Sachs Group Inc GS have broken out above the 52-week high at $181.13 and appear to be on a track to test the 2009 peak at $194.24.

Goldman Sachs shares' fate seems to be closely tied to recent overall market conditions. If the market is ripping higher, so is Goldman Sachs. If it is tumbling, then Goldman Sachs is usually under pressure.

How much higher can the stock rise?

What The Bulls See

• A company that is perfectly positioned to benefit from the low interest rate environment, strong equity market, strong investment banking deal flow and continued heavy activity in the commodities and forex markets.
• A company that sports some cheap valuation metrics: a price-to-book ratio of 1.14; price-to-sales ratio of 2.42; P/E to Growth ratio (PEG) of around one based on next year's earnings and revenue estimates.
• A stock that broke out successfully above $181.13 and that has plenty of clear skies until the 2009 peak at $194.24.

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What The Bears See

• A company that carries so much debt that things can go badly with the stock price with any hiccup in revenue sources, including from the sometimes high risk areas in which it trades. A slowdown in the investment banking deal flow, some difficult trading conditions in any of the asset classes or another slowdown in real estate are all potential problems that could create some major issues with Goldman's story.

The Technical Take

With Goldman Sachs' recent breakout above resistance at $181.13, technicians say that shares should have pretty clear sailing up to the horizontal line resistance (created by the 2009 peak) at $194.24. They acknowledge Goldman Sachs is overbought in the short term, but the stock should continue to lead the market higher in the short term.

When S&P futures hit its projected technical peak in the 2049–2066 area, though, it might be time to exit stocks whose underlying fundamentals are closely tied to the markets.

Technicians would urge to stay long until projected resistance is approached or tested. For traders who aren't long yet, they would wait for a pullback to at least the recent breakout point at $181.13.