ARRY Stock: A Backtest Has Successfully Been Completed
I have come across many traders and investors who have been frustrated by the price action that characterized the first quarter of 2018.
This frustration stems from the general market weakness, but what really ground their gears is that the wild swings that characterized the first quarter really did a number on their emotions.
If you have ever made an investment decision based on emotion, you will know that those decisions tend to not be good ones.
I had the inclination to maintain a bullish bias during these turbulent market conditions—which, at times, felt like I had made the wrong decision.
Luckily, I did not let my emotions get the better of me, because I believe that my bullish sentiment is about to get vindicated. Volatility has subsided and, as a result, the environment is now ripe for the markets to stage an advance.
I am now focusing on Array Biopharma Inc (NASDAQ:ARRY) stock, with the belief that it is likely to stage a move toward higher prices.
I originally looked at AARY stock in a February 12 report titled “Array Biopharma Stock Is Ripe for an Epic Move Toward Higher Prices.” In that report, I outlined a completed price pattern which was suggesting that ARRY stock prices were likely to appreciate in price.
Array Biopharma stock did stage a move toward higher prices, but that move was short-lived. The stock could not overcome the broad-based selling pressure, and it too was caught in the grips of the correction.
I am returning to this stock because the correction has done little to negate the bullish implications implied by the completed technical price pattern that is highlighted on the following chart.
Chart courtesy of StockCharts.com
The completed technical pattern highlighted on the ARRY stock chart is a cup-and-handle price pattern.
A cup-and-handle price pattern is a pattern that is characterized by two distinct troughs, with the first trough being much larger than the second. This pattern’s resemblance to a teacup is where it got its name.
The cup-and-handle price pattern on the Array stock chart was created because a significant level of resistance, which resided at $13.00, prevented the stock price from advancing beyond it.
In January, after 11 months of development, this pattern was finally completed when Array Biopharma stock was finally able to close above resistance. This breakout implied that the stock was likely to stage a move toward higher prices, and that is exactly what happened.
The move toward higher prices petered out in March, and the stock price has been correcting ever since. This correction has caused ARRY stock to return to the significant level of price resistance that was responsible for creating the pattern in the first place.
Returning to test a significant level of price resistance is called a backtest, and it is a very common occurrence. The price action serves to reinforce the notion that the breakout above resistance was legitimate, while simultaneously establishing this price point as a new level of price support.
As a matter of fact, backtests are known to act like springboards and, once a backtest is successfully completed, the stock price has a tendency to accelerate its trajectory of ascent.
This is why knowing when a backtest has been successfully completed can be very fruitful information.
I happen to believe that the backtest has just been successfully completed. The following Array Biopharma stock chart illustrates the indications that are responsible for creating that belief.
Chart courtesy of StockCharts.com
This stock chart illustrates the corrective price action that began after ARRY stock peaked.
This correction was orderly but bearish in nature. As a result, it contained the quintessential characteristic that defines all bearish trends, which is price action consisting of a series of lower lows and lower highs.
Connecting the series of lower highs created a downtrend line. This downtrend line acted as a level of price resistance that prevented the Array Biopharma stock price from advancing beyond it.
On May 10, ARRY stock broke above the downtrend line, suggesting that higher prices are on the horizon.
This breakout occurred right after the 200-day moving average was tested.
The 200-day moving average acts as a dividing line that separates bullish stocks from bearish ones. Trading above it is a bullish sign, while trading below it is bearish.
This metric has the habit of acting like both a significant level of price support and price resistance. In this circumstance, it acted like a significant level of price support.
The 200-day moving average coincided perfectly with the level of price resistance that created the cup-and-handle pattern.
This means the 200-day moving average was being tested at the same time that the cup-and-handle price pattern was being tested. This implied that the backtest was timed perfectly.
These indications suggest that the backtest is now complete and that higher Array stock prices are likely to prevail.
Just in time too, as the markets are now also poised to make a move toward higher prices.
The recent correction in Array Biopharma stock has been constructive in nature. It has done nothing to negate the bullish implications of the technical price pattern that was completed earlier this year.
I believe that the correction has reaffirmed its implication and, as a result, I believe that ARRY stock is now primed for higher prices.