Many Elliotticians believe that the US stock market is nearing the end of fives waves up from the 2008/9 low.  We already looked at Boeing (BA), 3M (MMM), and American Express (AXP).  Let’s take a look at another Dow 30 component, Goldman Sachs (GS).

The following is my Elliott Wave interpretation of Goldman Sachs stock (ticker GS) utilizing a combination of Elliott Wave and its associated Fibonacci price targets, as well as Hurst cycle analysis.  (Click on the chart to enlarge)

The price action in Goldman Sachs stock (GS) since its 2007 high is quite different than in many other Dow component stocks.  One difference is that it dropped from its November 2007 high to the November 2008 low in three waves, not five.  That drop was also much larger percentage-wise in GS than it was in most other Dow component stocks, an amazing  81% crash in just twelve months.  I’ve labeled that November 2008 low as the end of Supercycle wave 4 to match my long-term labeling in the Dow Jones Industrial Average.

Another difference here is the gradual, choppy, overlapping “recovery” from the late 2008 low.  I’m labeling the entire rally from the 2008 low as an unfinished contracting diagonal.  It certainly has the “look” of a contracting diagonal, and it generally follows the rules:

  • Wave 1 of the contracting diagonal is the longest of the 5 waves.
  • Wave 3 is shorter than wave 1.
  • Wave 4 is shorter than wave 2.
  • Wave 4 overlaps into the price territory of wave 1
  • Wave 5 has “thrown-over” a line extending from the extremes of wave 1 and 3 of the diagonal.

In a leading contracting diagonal, waves 2 and 4 must be zigzags, and waves 2 and 4 can be counted that way in GS, although the internal wave structure is a bit “unclean”, which is actually not that unusual during diagonals.  Also worth noting is that in an ending contracting diagonal, waves 1, 2, 3, 4 and 5 must all be zigzags, but in this case, it appears that wave 1 was an impulse.  This suggests that the entire structure from the November 2008 low is a leading diagonal, and therefore a Cycle degree wave 1 within a Supercycle degree wave 5 that will take several decades to complete.

As bullish as that sounds over the long haul, diagonals are typically deeply retraced, so after the current eight-to-nine year rally is complete, a multi-year corrective bear market would be due next, likely retracing at least .618 of the entire “recovery” rally.

The most recent rally from mid-2016 through March 2017 is an obvious 5-wave impulse in GS.  That rally could be the end of the diagonal and therefore 5-waves up from the 2008 low.  And if this diagonal is of the leading variety, there is no requirement that the 5th wave form a zigzag.  So is the top “in” or not?  Enter Hurst cycle analysis:

Using Sentient Trader software, and starting the Hurst cycle analysis in May 1999, the phasing and associated composite line suggest that we won’t see the end of the rally from 2008 in GS stock until sometime in 2018, and possibly as late as September of that year.  That analysis also expects a continued dip into the 4th quarter of this year before the final leg up ensues.  That roadmap is quite similar to those shown in the other Dow 30 components I’ve posted about so far.  This is why I’ve labeled the 5th wave up from the 2008 low in GS as incomplete in my main count.

Either way, (whether the top is “in” or not),  if my interpretation of a contracting diagonal is correct, Goldman Sachs stock cannot rally past 272.73 because wave 5 of the contracting diagonal must be shorter than wave 3.

This is the fourth in a series of posts featuring my analysis of individual large-cap Dow component stocks.  Expect another within a few days.

Sid Norris