Goldman Sachs says "conviction buy" BAC and other banks - should you?

Goldman Sachs issued a "conviction buy" recommendation for Bank of America and other banks. Should you follow that recommendation? Readers here know that I've been tracking the banking index as a sector for quite a while now. From a fundamental perspective, there's still plenty of discussion whether this sector is a good place to put new money to work - I won't attempt to recap those points pro and con. Technically, a lot of damage has been done and the banking index has not yet been able to surmount important resistance. If it does, then by all means feel free to follow along - with what I'd call "conviction stop loss orders" in case there are new bad surprises! But notice that the resistance hasn't been defeated yet. Below is the daily chart of Bank of America (BAC). After a drop that lasted several days, it's just begun to move up again. This will make it vulnerable if it again weakens and drops under its low of last week. The same is true of the banking index (BKX, second chart below).

The weekly chart of the banking index (bottom chart) is another of my charts I still find concerning. Believe me, I was looking for the important BKX low and thought it had a good chance of having found that in March. The good move up since then is sitting at trendline and other resistance I've described here (use "Banking" label to find prior posts).

From another perspective, not technical and perhaps fundamental - Goldman Sachs has long been viewed as a leader for recommendations of this sort. Maybe their word this morning, issuing the "conviction buy" for many banks will help this industry's stock prices go up. Personally I will find it interesting to watch how this recommendation works out. I have a sense that whether it does - or not - could have some additional dimensional effects in the markets. For a while, I referred to Citigroup (C) as my "Canary in the coal mine"* ... meaning a stock to keep an eye on, for how the whole market's faring. Perhaps now this "Conviction Buy" recommendation will serve as another "Canary" to watch.


*Okay, I'll add my old Citigroup chart here too, updated through a few minutes ago - this one doesn't have that triangular pattern I marked recently, nor the hypothetical channel path I also marked marked with trendlines on it. But it's pretty evident that it either needs above $4.48, or it can also go a bit higher than that in a parallel shallow channel, but overall looks like it may be only churning in-between its 50 and 200 day moving averages. Personally, my "fear" would be that it pokes over $4.48 only to touch the upper parallel of a channel that it could be in, and then reverse down - that would be very yucky to anyone who buys a fake breakout: