With CARA Stock, Patience Is a Virtue
The biotechnology sector can be lucrative for investors. Many of the companies that populate this sector offer incredible upside potential. Just as many have led by example.
So much hangs in the balance whether or not new innovative drug treatments are approved by the U.S. Food & Drug Administration (FDA). These events have resulted in incredible moves in biotech stock prices, both up and down, depending on the nature of the news.
The size of these price moves is why investors love to speculate on companies undergoing late-stage drug trials. These companies are ever so close to getting final approval by the FDA, wherein their treatment can finally be sold and marketed to the masses.
Cara Therapeutics Inc (NASDAQ:CARA) is entering late-stage trials for a treatment it has developed for acute pain, chronic pain, and pruritus (itchy skin).
I am watching the CARA stock chart with great anticipation because I have reason to believe that it is the stock is on the verge of breaking above a very significant level of price resistance.
That would open the door to much higher prices, especially if there is any more positive news regarding the company’s drug treatment. That would ultimately act as catalyst, moving the stock price up.
This significant level of price resistance I am currently watching is captured on the following Cara Therapeutics stock chart.
Chart courtesy of StockCharts.com
This CARA stock chart captures a significant level of price resistance that resides at $23.80. This level of price resistance was first established in March 2014, and it has prevented the stock price from advancing beyond for over two years.
This inability to advance has resulted in the creation of three distinct troughs. These troughs have created a technical price pattern known as an inverse head and shoulders price pattern. The first and third troughs are the shoulders, and the second trough is the head. The significant level of price resistance doubles as the neckline.
Inverse head and shoulders price patterns are reversal patterns. Breaking above this significant level of price resistance will complete the inverted head and shoulders price pattern. This will open up the door to much higher stock prices, suggesting that a new bullish trend has begun.
The great thing about this pattern is that it will not only suggest that a new bullish trend has begun, but it will also provide a price objective for the new trend in development.
The price objective is obtained by taking the depth of the cup and extrapolating that value above the significant level of price resistance that defined that pattern. Putting this theory to work suggests that when CARA stock finally breaks above resistance at $23.80, $43.00 will become a viable price objective for this new bullish trend in development.
The significant level of price resistance also marks Cara Therapeutics stock’s all-time high. That means it is also the last level of price resistance that stands in the way of much higher prices.
Once this stock clears this threshold, there will not be anything to contain the stock price from advancing. This suggests that even the price objective suggested by the inverse head and shoulders pattern may prove to be a pit stop on its way toward much higher prices.
The reason I am suggesting such a possibility is because once resistance is broken, everyone holding a short position will be inclined to cover, while momentum investors will be chasing performance. This set of circumstances causes an insatiable appetite for the stock, and it has been known to fuel epic moves toward higher stock prices.
Some of the best-performing stocks have shared this exact characteristic. Look no further than Facebook, Inc. (NASDAQ:FB) stock and Shopify Inc (NYSE:SHOP) stock for perfect examples of the performance a stock is capable of once it takes out its long-standing highs.
I am watching the development of a very large technical price pattern on the Cara Therapeutics stock chart. I’m waiting until that fateful day when it sustains a close above resistance, completing the pattern. Such an event would clear the path for further gains.
CARA stock made an attempt to breach the resistance level in June, but that attempt was quickly thwarted. Perhaps the next attempt will be successful.