BioScrip Stock: Waiting for the Trigger
Let’s completely dismiss the prospects of a trade war, as well as the year-to-date performance of the Dow Jones Industrial Average and the S&P 500. Instead, let’s put a spotlight on the positive things that are currently driving the market.
For instance, the Nasdaq composite index has recently forged a new all-time high as recently as June 20. This move toward higher index values has been supported by a number of stocks and sectors, like healthcare and small-cap stocks, which have accomplished the same feat.
The reason why I singled out these two subgroups is that I have stumbled upon a compelling investment that just happens to fall into both categories.
The investment in question is BioScrip Inc (NASDAQ:BIOS) stock. Aside from the sector that it populates, I am focusing on BioScrip stock because I have reason to believe that the stock is setting up for a powerful move toward higher prices.
My beliefs are based on two technical price patterns that are currently still in development. This first technical price pattern is highlighted on the following BIOS stock chart.
Chart courtesy of StockCharts.com
The technical price pattern highlighted on the above stock chart is a triangle price pattern.
Triangle price patterns are created when the price action is characterized by a sequence containing a series of lower highs and a series of higher lows.
Capturing this pattern was achieved by connecting the peaks and troughs that were created by the price action. This process created two converging trend lines, which not only defines the pattern, but also pinpoints where price resistance and price support resides.
These levels of price support and price resistance are important because, in order to complete the pattern, BioScrip stock needs to escape from the pattern by either breaking above price resistance or breaking below price support. When one of these levels is broken, a powerful move is expected to follow.
The reason why a powerful move is expected to follow is that, in general, triangle patterns are known for their powerful breakouts. These patterns are very special because they have the ability to build and store energy within the pattern as it develops. Once the stock price escapes from the pattern, the energy is released.
The energy within this pattern is created by traders identifying the pattern and positioning themselves on either side of price support and price resistance—in anticipation of a possible breakout. Once this event unfolds, the traders act and the stock price moves in that direction as a result.
Price resistance currently resides at $3.15, and it is now being tested. Breaking above this price point will complete the triangle price pattern, which will, in turn, suggest that much higher stock prices are likely to follow.
The thing about this triangle pattern is that it is embedded inside a much bigger price pattern, which will amplify the implications that follow once the stock price escapes from it.
This bigger price pattern is highlighted on the following BioScrip stock chart.
Chart courtesy of StockCharts.com
This BIOS stock chart illustrates that the much bigger technical price pattern is a cup-and-handle price pattern.
Cup-and-handle price patterns are created when a significant level of price resistance prevents the stock price from advancing beyond it.
On the second BioScrip stock chart, the significant level of price resistance currently resides at $3.40, and it was first established in October 2016. The inability to move beyond this price point was responsible for the creation of two distinct troughs.
When identifying this pattern, the first trough is always much larger than the second, which is why this pattern qualifies as a cup-and-handle price pattern.
The second trough, which is the “handle” in the cup-and-handle pattern, doubles as the triangle pattern that was highlighted earlier.
This scenario suggests that, once the stock escapes the triangle pattern by breaking above resistance (which currently resides at $3.15), the stock price will continue to appreciate. The price will then break above the resistance level that has defined the cup-and-handle pattern.
In essence, when the triangle pattern is completed, it will cause the cup-and-handle pattern to be completed shortly after, acting like a chain reaction.
The great thing about a completed cup-and-handle price pattern, aside from suggesting that higher BIOS stock prices are likely to follow, is that it can also be used to create a price objective for the move that is expected to follow.
This objective is obtained by taking the depth of the cup and extrapolating that value above the significant level of price resistance that defined the pattern.
Putting this method to work suggests that, once BioScrip stock breaks above $3.40, the plausible price objective becomes $5.80.
I am watching BioScrip stock because there is a powerful setup currently in development.
A bullish resolution of one technical price pattern will cause the completion of another technical price pattern. This suggests that a powerful move toward higher BIOS stock prices will follow.