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Berkshire Hathaway and Goldman Sachs Technical Analysis

Berkshire Hathaway Inc (BRK.A)

Berkshire Hathaway Inc (BRK.A) is involved in many diverse businesses including insurance, freight rail transportation, utilities and energy. It is listed on the New York Stock Exchange (NYSE) with a market capitalisation of around $350billion. Price last traded at $224,880. To learn more about the company, please visit its website at www.berkshirehathaway.com

Let's take a bottom up approach beginning with the daily chart.

BRK.A Daily Chart

BRK.A Daily Chart

There was some interesting price action to start the month of February. That involved price coming down and clipping the December 2014 low of $215,500. It was only a marginal new low at $215,151. This was a false break low and price has exploded higher which is common behaviour after false break lows.

This also sets up a bullish double bottom as it is with the trend. It is with the trend because it occurred above the previous swing low which was set in October 2014. These double bottoms generally provide the springboard for price to launch to new highs and while it hasn't happened yet it does indeed look likely.

This recent February low found support at the 100 period moving average which is denoted by the red line. This moving average also held the previous swing low on October 2014.

The Parabolic Stop and Reverse (PSAR) indicator shows price busted resistance given by the dots on the charts. So a bullish bias is now in play.

The Relative Strength Indicator (RSI) is trending up and a new high looks like it may set up a triple bearish divergence. That normally leads to a significant decline and that is my expectation here.

The Moving Average Convergence Divergence (MACD) indicator is trending up but it is generally in a weak position dominated by a pattern of lower highs and lower lows. This coming high also looks set to be accompanied by a bearish divergence here.

Finally, a common topping pattern consists of three consecutive higher highs. I like to call this a "three strikes and you're out" top and that looks set to play out here. We already have the first two highs and now just await the third and final high to be put in place.

BRK.A Weekly Chart

BRK.A Weekly Chart

I have drawn an uptrend line connecting the August 2014 and October 2014 lows. This trend line provided support on the recent move down with price clipping this trend line before reversing back up. Nice.

The recent low also came in above the previous swing high set in September 2014 which is denoted by the horizontal line. This keeps the uptrend in a strong position.

A new high is likely to be accompanied by a bearish divergence in both the RSI and MACD indicator.

BRK.A Monthly Chart

BRK.A Monthly Chart

I have drawn several trend lines along bottoms. Each consecutive trend line is becoming steeper which is a sign of the maturation of the bull trend. We now have five steeper trend lines which is generally the limit. This bull trend is not only mature, it is downright old.

Price already has broken below the last trend line and price going to new highs now is the last hurrah. The gravedigger move! I expect come the end of February price will be back below this fifth consecutive trend line.

The Bollinger Bands show price has moved away from the upper band and a move to new price highs now looks to be one last attempt to get back to this upper band.

A new monthly high now looks set to show a triple bearish divergence in both the RSI and Momentum indicator. And this is the monthly chart no less.

Finally, the MACD indicator looks to be threatening a bearish crossover.

Let's wrap up the analysis by looking at the big picture with the yearly chart.

BRK.A Yearly Chart

BRK.A Yearly Chart

It is clear that a massive bull market is in play as per the pattern of higher highs and higher lows. I now expect a high over the coming days that will put in the next yearly higher high. Then a big move down should be in store that eventually sees a higher low put in place.

I have drawn an Andrew's Pitchfork with the middle channel beginning at the 2000 low, the upper channel at the 2007 top and the lower channel at the 2009 low. It is quite common to see top do an "up and over" of the upper trend line and that seems to be playing out here too.

The coming top looks set to show a bearish divergence on the RSI so considering this is the yearly chart then a substantial move down is likely.

Once the final top is in place I expect price to come all the way back to the lower trend line and just as the top is a false break of the upper trend line so too is the low likely to be a false break of the lower trend line.

I have also added Fibonacci retracement levels of the move up from 2009 low to recent high. Now keep in mind I think the final high is yet to be seen but it shouldn't overly affect this analysis. I favour the final pullback low being around the 61.8% level at $130,911.

I have drawn a green highlighted circle which denotes the area I favour for the final pullback low. The timing is in 2016 and a touch under the 61.8% Fibonacci level and a touch under the lower Andrew's Pitchfork trend line. Let's see!

Betting against Warren is generally a mug's game but I'm not playing the man. I'm playing the chart.


Goldman Sachs Group (GS)

Goldman Sachs Group (GS) is a global investment banking group and is listed on the New York Stock Exchange (NYSE) with a market capitalisation of around $75billion. Price last traded at $183.43. To learn more about the company, please visit its website at www.goldmansachs.com

Let's begin with the small picture and work our way up from there.

GS Daily Chart

GS Daily Chart

Price recently bounced off its low which set up a bullish divergence on both the Relative Strength Indicator (RSI) and Moving Average Convergence Divergence (MACD) indicator.

The Parabolic Stop and Reverse (PSAR) indicator has a bullish bias after price busted the dots on the upside a few days ago.

The Bollinger Bands show price has bounced back up to the upper band and I think it can push further higher over the coming days as it clings to the upper band.

The recent low set up a double bottom with the October 2014 low. This double bottom is with the trend which is bullish and hence should lead to new highs. But I have my doubts. Why?

Firstly, there is no 100% proof system in the market. Just ask the old bosses of Long Term Capital Management! The recent low just doesn't look solid enough to my eye. But that's the art as opposed to the science. I would like to have seen price really test the support of the October 2014 low by breaking below that level to see how price reacts and hopefully get a false break low. But we didn't get that test so I believe a bear market rally only is now in progress.

As for how high this bear rally will trade, I have added Fibonacci retracement levels of the move down from recent high to recent low. I favour price retracing to either the 61.8% level at $188.20 or the 76.4% level at $191.97. I favour the latter.

GS Weekly Chart

GS Weekly Chart

The RSI has turned back up but this is coming after a new low so the move higher is on weak foundations.

The MACD is still trending down despite the recent rally. The averages look like they are about to turn back up but that may run out of time if price turns back down shortly. Let's see.

The PSAR indicator has a bearish bias with the dots above price.

Price has left the lower Bollinger Band and if this is a bear market rally, which I think it is, price could be expected to turn back down around the middle band which is currently just under $188. That is right around the 61.8% level but price often pushes a bit above bringing the 76.4% right into the mix.

If price does indeed turn back down, breaking below the October 2014 low of $171.26 would look bearish while breaking below the April 2014 low at $151.65 would likely confirm the bear market is on.

GS Monthly Chart

GS Monthly Chart

The recent high at $198.06 was at resistance given from the October 2009 high denoted by the horizontal line. The recent high was actually a little false break top which also instils confidence in me that the trend is now down.

The RSI is looking weak as it seems on its way to oversold territory while the Stochastic and MACD indicators have both made recent bearish crossovers and now look headed down.

As for how low I expect price to trade in this new bear trend, if it is a bear trend of course, I have added Fibonacci retracement levels of the move up from October 2011 low to recent high. I have used the October 2011 low as a starting point as I don't believe price will trade below there. However, I do expect a deep retracement back to the 76.4% level at $111.12. Personally, I think price will nudge lower but not as low as the 88.6% level at $97.24. If I had to pinpoint a price I will settle with $101. I doubt will we see double digits. Time will tell.

Let's wrap it up with the big picture yearly chart.

GS Yearly Chart

GS Yearly Chart

The RSI is in no man's land but there does look to be a pattern of higher lows and higher highs setting up which is bullish. The next major price low being accompanied by yet another higher low RSI reading would look good for the bulls. Let's see.

The PSAR indicator still has a bearish bias.

I have added an Andrew's Pitchfork and I'd like to see price come back to test the lower channel line. I often note highs and lows are false breaks of the upper and lower trend lines and I'd like to see the final pullback low be a false break below the lower trend line.

I have added Fibonacci retracement levels of the move down from all time high to major low. Looking retroactively, price has already found support at the 76.4% level so I'd like price to next find support at the 61.8% level at $104.90. Now the 61.8% level is one of the most widely followed by technicians and I find price often dips a bit below as it tries to trick these traders. Dipping a bit below to $101 would suit perfectly!


 

Disclosure: I have no financial interest in BRK.A or GS.

 

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