Buyers scored a rousing victory Monday as stocks delivered a strong reversal candle. Specifically, the S&P 500 formed a classic bullish engulfing candle, sparking a much needed rebound by many stocks that were embattled after last week’s sell-fest.
While you can pretty much take your pick on any number of dip-buying candidates here, financial stocks such as Goldman Sachs (GS) look prime.
That’s because the financial sector popped following the latest Federal Reserve announcement on hopes of a rate hike arriving by year-end. Those who piled in after the price jump, though, had to suffer through last week’s downturn. If you were wise and waited for a better entry point, now’s the time to strike.
Goldman Sachs sits firmly in an uptrend above both a rising 50- and 20-day moving average. Buyers stepped up at just the right time Monday to prevent GS stock from falling below the 20-day.
The clean price action has been coupled with bullish volume patterns. November has delivered two significant accumulation days, including Monday’s reversal, and sell volume has been muted to show the bulls dominance as of late.
GS Stock Chart
At its current perch, the risk-reward for GS stock is tilted heavily in favor of the bulls. A price of $200 is a logical target for Goldman Sachs’ next advance, while Monday’s low can be used as a tight stop for those who want to bail at the first sign of trouble.
Print Money with GS Call Spreads
Traders looking to go for the gusto with GS stock in the coming months could buy the Jan. $190/$200 call spread for $4.45 or better. The max loss is limited to the initial $4.45 debit, which will be lost if GS sits below $190 at January expiration.
The max gain is limited to the distance between strikes minus the net debit, or $5.55, and will be captured if GS stock rises above $200 by expiration.
The spread offers the potential to double your money if GS can simply rise above $200.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.