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The Future of the Stock Market May Depend on This Company

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Jeff Clark takes a hard look at prospects for Goldman Sachs (GS)

The stock market looks to me to be teetering on the edge of the abyss.
 
If the S&P 500 can't hold the 1,300 level, 1,250 could be in the cards. If the index can climb back in off the ledge and somehow manage to rally from here, we could be looking at new yearly highs by August.
 
There's a lot at risk - and, I would argue, a lot of potential reward. So who can you trust to steer you in the right direction?
 
I would submit the answer could be Goldman Sachs (GS).
 
That's right. The stock everyone loves to hate may hold a key to the summer-time action of the stock market.
 
By the time you read this, GS will have already reported earnings for the quarter. More important than what the company says is how the market reacts to the announcement. As Goldman Sachs stock goes, some say, so goes the market.
 
Goldman often acts like the stock market's "canary in the coal mine". When it performs well, the stock market has very often also performed well. When it's weak, so is the rest of the market - not always, but increasingly much of the time.
 
As you can tell from the following chart, Goldman Sachs has been an anchor around the neck of the market since April:



Recently it seems like the broad stock market cannot rally without leadership from the financial sector. If the leading financial stock in the country is under pressure, the entire stock market seems to have trouble gaining ground. GS peaked in April and was a leading indicator for the recent correction in the stock market.
 
However, this GS chart looks like it's trying to form a bottom. The stock is falling and making new yearly lows, but the MACD momentum indicator is rising. This positive divergence suggests the momentum behind the decline is weakening. If that proves correct, it wouldn't take much to pop the stock higher and reverse the downtrend.
 
It all depends on how the market reacts to the earnings announcement on Tuesday 7/19. If GS shares rally and close higher on the day, the odds favor a summer rally for the broad stock market.
 
On the other hand, if GS closes lower on earnings day, the S&P may need to retest its spring-time lows before finding a bottom.
 
Either way, there's a lot riding on the way GS trades Tuesday. Smart traders should pay attention to it.

 
Best regards and good trading,
Jeff Clark
Growth Stock Wire
TradeKing All-Star Commentator


Editor's note: Veteran trader Jeff Clark is author of Growth Stock Wire, a daily read providing investors with a pre-market briefing on opportunities in the global stock, currency, and commodity markets.  Click here for more information… and a free report designed to hone your trading strategies.

Jeff Clark / Growth Stock Wire holds no positions in any securities mentioned in this post.

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