Last night on stockspotter I received an exit signal for Goldman Sachs (GS) after the recommendation was active 5 days. The trade earned 2.34%. Given this information and the recent analyst downgrade by RBC, you might want to rethink a Goldman Sachs long position… at least for the time being.
Goldman Sachs, which became a bank holding company in the wake of Lehman’s failure, was given a less than favorable analyst call from RBC Capital Markets this week, as the firm recorded an underperform rating for the company.
According to RBC, the chief risk is regulatory reform. The firm derives the bulk of its pre-tax profits (around 95%) from what the industry would define as investment banking, and is thus heavily exposed to the impact of regulations like the Volcker rule, which aims to limit the amount and type of trading banks can do for their own account.
Another concern cited by RBC on Goldman is that the transition to bank holding company status, which gave access to the Federal Reserve’s discount window and in theory allowed for deposit-taking, did not lead to any “significant strides” on the latter effort. As such, the company is still reliant on wholesale funding, which was “the Achilles heel of the broker dealers during the crisis” when lending dried up and banks fled from any whiff of risk.
By using the SwamiCharts graph below you can easily notice the red “sell” signal from the Predict indicator. Also, the increase in dark blue, as illustrated by the Volume indicator just above, could be read as a cautious trading signal considering that markets do not often make aggressive continuations or reversals on relative weak volume.
Additional Company Info: The Goldman Sachs Group, Inc., together with its subsidiaries, provides investment banking, securities, and investment management services to corporations, financial institutions, governments, and high-net-worth individuals worldwide. Its Investment Banking segment offers financial advisory, including advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense, risk management, restructurings, and spin-offs; and underwriting securities, loans and other financial instruments, and derivative transactions.