CARA Stock: This Marijuana Stock Is Poised for Further Gains
Marijuana stocks have once again been set ablaze. Greed and the fear of missing out (FOMO) is causing retail investors to clamor into this space. There are already some signs that a bubble is inflating in the marijuana sector.
Even the slightest mention of the words “marijuana,” “cannabis,” “THC,” or “cannabidiol (CBD)” in a press release creates a massive buzz around a stock. A bubble may be in the making, but this is not necessarily bad news. From an investment standpoint, this is a time when the largest gains are captured in the least amount of time.
I am focusing on a non-traditional marijuana company in Cara Therapeutics Inc (NASDAQ:CARA). This biotechnology company is developing a cannabis-based opioid replacement that is intended to treat acute and chronic pain.
This treatment uses cannabinoid receptor antagonists. In layman’s terms, this means Cara Therapeutics’ drug treatment uses the non-psychoactive property of marijuana that is alleged to have many medical and health benefits.
Just this past week, rumors were swirling that The Coca-Cola Co (NYSE:KO) was interested in creating a CBD-infused health drink. The news created an uproar in the marijuana stock sector, fueling further gains. This same tailwind has been helping propel the CARA stock price higher.
Cara Therapeutics stock has been staging an impressive move toward higher prices since the middle of March. This move has been captured on the following chart.
Chart courtesy of StockCharts.com
The stock chart above illustrates that CARA stock began staging an advance shortly after a bullish moving average convergence/divergence (MACD) signal was generated.
MACD is a technical indicator that distinguishes whether bullish or bearish momentum is influencing the trading action in a stock. Knowing this information is extremely useful because a stock cannot make a sustained move toward higher or lower prices unless the applicable level of momentum is supporting it.
For instance, in the third week of March, a bullish MACD signal was generated. This suggested that bullish momentum was influencing the price action in CARA stock.
From that day forward, higher Cara Therapeutics stock prices have prevailed. The advance has taken the classical bullish form, characterized by a series of higher highs and higher lows.
The recent high was also a very significant event. This break to a new high on the year completed a very large technical price pattern. That pattern is captured on the following chart.
Chart courtesy of StockCharts.com
The pattern captured on the above chart is an inverse head and shoulders pattern.
An inverse head and shoulders price pattern is characterized by three distinct troughs. The first and third troughs, the shoulders, are usually of equal size. The middle trough, the head, is always the largest.
These troughs are created because a significant level of price resistance has prevented the stock price from advancing beyond it. This level of resistance, as it pertains to the inverse head and shoulders price pattern, is called the neckline.
The neckline, which resided at $23.00, was first established in March 2014. The troughs followed later.
On September 20, 2018, CARA stock broke above $23.00, completing the pattern. This event suggests that a new bullish trend toward higher prices is in its infancy.
The great thing about this completed pattern is that, aside from it suggesting that higher stock prices are likely to prevail, it is also kind enough to provide a much-needed price objective for the move that is expected to follow.
The price objective is obtained by taking the depth of the head and extrapolating that value above the neckline. Applying this theory in practice suggests that $42.00 is a viable price objective for Cara Therapeutics stock.
That is a very respectful price objective, compared to current prices, but I happen to believe that this price point is only a pit stop for a move toward much higher prices.
The reason why is that the neckline that was responsible for creating the completed technical price pattern was also the long-standing high that was created shortly after the company began trading on a public exchange. That was all that stood in the way of higher prices.
Breaking above that long-standing high created a new all-time high, paving the way for even higher prices. There is no longer a level of price resistance to contain the CARA stock price, so the sky is essentially the limit.
Another recent example of this was with Tilray Inc (NASDAQ:TLRY). When the TLRY stock price broke above its high that was created shortly after inception, the stock price took off. It ran from $39.30 to $300.00, translating into a 663.4% move over a four-week period.
Other good examples are Facebook, Inc. (NASDAQ:FB) and Shopify Inc (NYSE:SHOP). The moves that followed their breaks are still in development, and these stocks continue to appreciate.
I am bullish on the prospects of Cara Therapeutics stock because it has completed a very large technical price pattern.
That stock chart pattern is suggesting that much higher CARA stock prices are likely to follow.