BLUE Stock: Breakaway Gap
bluebird bio Inc (NASDAQ:BLUE) stock is trading higher on the good news that was disseminated after the close of trading on November 30. The news is actually better than good; it’s fantastic. The company’s myeloma cancer treatment has delivered significant benefits with no major side effects in patients.
It is actually quite rare that a biotech company releases information from one of its clinical studies that includes no major side effects. This is great news for those unfortunate enough to be suffering from this type of cancer, and it should not be surprising that BLUE stock is surging on the back of this news.
I am actually quite excited that I stumbled upon Bluebird stock, because its chart is very constructive and adheres to technical signals and patterns extremely well.
The following stock chart illustrates how Bluebird stock adheres to technical patterns and signals.
Chart courtesy of StockCharts.com
Moving average crosses have worked particularly well in identifying and confirming whether bearish headwinds or bullish tailwinds are prevailing.
There are two types of signals that can be generated using simple moving average crosses. A golden cross indicates that a bull market is on the horizon, and a death cross indicates that a bear market is on the horizon.
A signal is confirmed when the faster moving average (50 day-moving average) moves above or below the slower moving average (200 day-moving average). The golden cross and death cross are the exact opposites of each other.
In early October 2015, a death cross was generated on the Blue stock chart, indicating that a bear market was on the horizon and that bearish headwinds were prevailing, meaning that the path of least resistance is lower. After this signal was generated, Bluebird stock proceeded to fall 62%. One should pay heed to this signal.
In early a September 2016, a golden cross was generated, indicating that a bull market was on this horizon. Some choppy trading action did follow, but higher prices have prevailed.
The choppy price action was due to the ending triangle that developed in the first half of 2016. Ending triangles are rare patterns because of where they occur in a trend. On average, triangles are continuation patterns and, because of the shape that makes up these patterns, they are also very explosive. So, when triangles are not continuation patterns, they act as powerful trend reversal indicators.
The drastic sell-off that occurred in October 2016 was still within the context of constructive price action as it served to backtest the ending triangle pattern.
The following Bluebird stock chart illustrates the current bullish development that the surge in price has caused.
Chart courtesy of StockCharts.com
In June, BLUE stock peaked and a bear market quickly gripped this investment. The bear market was defined by using a downtrend line. This downtrend line, highlighted in blue, is created by connecting the peaks on the price chart. A downtrend is defined by lower lows, confirmed by lower highs. It can easily be identified as the price moves from the upper left to the lower right.
In order to confirm that the bear market in BLUE stock has indeed concluded, this downtrend line needs to be broken by the price closing above it. That is exactly what the positive news surrounding the myeloma treatment has caused. The price has surged higher, leaving a potential gap on the Bluebird stock chart.
A gap on the price chart is a significant event, especially when it occurs around a trend line. Traders refer to this price action as a breakaway gap, and this gap rarely gets filled and almost always signals that a new trend has started.
If BLUE stock can close above the trend line, this could signal the beginning of a much larger bullish move that could be setting its sights at the previous all-time high at $200.00.
Bottom Line on Bluebird Stock
Bluebird stock is set to soar on the positive news surrounding its myeloma cancer treatment. If BLUE stock can close above the downtrend line, this move in price will mark the beginning of a new bull market.