Marc Pado Comments: Settlement Boosts Goldman Shares Over Key Resistance

July 16, 2010, The Wall Street Journal

Goldman Sachs Group Inc.'s $550 million settlement with the Securities and Exchange Commission didn't just put its civil-fraud charges for its handling of mortgage-linked securities in the rear-view mirror; it also helped drive the big bank's stock past a key resistance level.

After the closing bell Thursday, the SEC said Goldman agreed to pay $550 million to settle civil charges that it duped clients by selling mortgage securities that were secretly designed by a hedge-fund firm to cash in on the housing market's collapse. Goldman settled the civil fraud complaint without admitting or denying the charges.

The SEC's mid-April announcement of its charges against Goldman sent the stock sliding down to the $130s from the mid-$180 range, and it has spent the past few months repeatedly trying to break above $140 but failing.

On Thursday, as investors accurately predicted a settlement was on its way for Goldman, the stock got the kick it needed to climb above $140. Chart watchers say that level should now act as a floor for the stock, which rose 4.4% Thursday and climbed another 2.4% in recent trading to $148.78.

"It was like a slingshot," said Marc Pado, U.S. market strategist at Cantor Fitzgerald. "It was a big breakout, a very confirming move above technical resistance. Everybody probably had an assumption of what the resolution would be, they set themselves up, and it exploded from there."

Mr. Pado predicts that Goldman won't be seeing the $130 range again, barring any big additional unexpected problems.

"I don't think we go below $140, as so many negatives were built into it that now that you've broken out, that represents excellent support," he said.

Mr. Pado points to $160 as Goldman's next big resistance level and expects the stock to gradually climb up to that level over the next few months.

Stephen Lieber, chief investment officer of the Alpine Dynamic Balance Fund, also expects Goldman's stock to keep climbing from here.

"There's something called a relief rally involved, and $550 million is immaterial to Goldman Sachs," Mr. Lieber said. While the settlement represents one of the largest penalties in Wall Street history, it is a cost that outside observers deemed a bargain for Goldman, equivalent to just 14 days of the company's profits in the first quarter.

Mr. Lieber has been a holder of Goldman's shares since before the SEC announced its charges against Goldman on April 16. He added to the position since then as the stock reached cheaper levels, under expectations that the company would ultimately move past the charges and return to its prior levels.