This Characteristic in Bluebird Stock Could Be Exploited

Bluebird stockBLUE Stock: Habits Are Hard to Kick

My bullish views surrounding bluebird bio Inc (NASDAQ:BLUE) stock are not a secret, because earlier this year I published a report titled “This Is Why Bluebird Stock Will Soar into the Sky in 2017.” I am returning to this name because the price action has been incredibly phenomenal, and it continues to suggest that higher prices are likely. I cannot stress how impressed I am with the way this stock abides by certain technical rules, and the level of respect it has for important price levels. I believe that I have identified an embedded trading characteristic in BLUE stock that can be used in applying an appropriate trading strategy.

For anyone who isn’t familiar with the method I use to analyze a potential investment, I employ technical analysis to develop a bullish or bearish view. This method of investment analysis is based on the notion that historical price and volume data can be used to decipher trends and forecast future stock prices. I have been refining my craft in this method for nearly two decades, and have become proficient in applying it to my trading strategies.

The best way I can describe this embedded trading characteristic is that Bluebird stock is fond of the “one last kiss goodbye,” which is in reference to its habit of returning to test a previous level of resistance.

The following Bluebird stock chart illustrates this one last kiss goodbye that technicians refer to as a backtest.

bluebird stock chart

Chart courtesy of StockCharts.com

A triangle was in development for much of 2016. This pattern contains two converging trend lines that define support and resistance. These trend lines are created by connecting the respective peaks and troughs on the price chart. This pattern is particularly powerful because as it progresses, momentum is stored. This momentum is finally released when the price exits the pattern.

In July 2016, price exited the triangle in an upwards direction, confirming that the pattern was an ending triangle. An ending triangle indicates that the predominant bearish trend towards lower prices has finally concluded. Blue rallied out this triangle for roughly three months before a correction finally ensued. Even though this correction retraced all of the gains that were made, it did not tarnish the overall bullish picture that was suggested by the ending triangle.

BLUE stock returned to test the ending triangle from above, and this price action actually served to reinforce the bullish view as this was a successful backtest. A backtest, or the one last kiss goodbye, reinforces the notion that the original breakout was legitimate and that a new trend has begun.

This backtest is the embedded characteristic that defines the trading action in Bluebird stock, which has a habit of returning to previous levels of resistance and testing them from above.

The following BLUE stock chart illustrates this defining characteristic in action once again.

BLUE stock chart

Chart courtesy of StockCharts.com

I used a simple downtrend line to define the bearish trend that contained the price of BLUE stock after it peaked in June 2015. This downtrend line was created by connecting the peaks on the price chart. This trend line acted as a simple tool, indicating that as long as Bluebird remained below this trend line, a bear market was still in play and lower prices were expected.

It was not until November 2016, which was a year and half later, that Bluebird shares were finally able to break out above this bearish downtrend line. This breakout, which is highlighted on the price chart above, reinforces the notion that a bullish new trend that was first suggested by the ending triangle has begun. Bluebird returned to this level and backtested it from above, and this habit of a one last kiss goodbye is a becoming an apparent recurring theme.

Following the backtest, Bluebird stock accelerated to the upside, and even though the stock is now firmly entrenched in a bullish trend, this habit of backesting a previous level of resistance continues.

The following BLUE stock chart illustrates another example of this recurring theme of completing a backtest.

BLUE stock chart

Chart courtesy of StockCharts.com

A bullish trend is now firmly entrenched, and the price action on the stock chart supports this view.

Bullish price action contains impulse waves that advance the price, and consolidation waves that serve to unwind overbought conditions and set up the next advancing impulse wave. This alternating wave structure is essential in creating a sustainable trend.

This defining characteristic was seen once again as price exited the consolidation wave in an upwards direction, indicating that another impulse wave was in development. This impulse wave returned to backtest the consolidation wave from above before it resumed its trend to the upside.

Bottom Line on Bluebird Stock

BLUE stock carries a defining characteristic of backtesting previous levels of resistance, and this habit should be factored into any applicable trading strategy. I am bullish on Bluebird stock because there is every indication that the path of least resistance is geared towards higher prices, and I will continue to tilt my strategies towards my bullish view until there are indications on the Bluebird price chart that suggest another view is warranted.