CARA Stock: The Play Is on Fire
Biotechnology stocks are off to a good start in 2017, and marijuana stocks have been all the rage since 2016. Cara Therapeutics Inc (NASDAQ:CARA) stock brings together the best of both these worlds. This marijuana biotech stock engineers and develops cannabis-based products that target the body’s peripheral nervous system. The combination of these two market segments is the perfect ingredient for a runaway bull market. Marijuana stocks are on fire, and the turn higher in biotechnology stocks is the equivalent of pouring gasoline on a fire. Cara Therapeutics stock is up 94.2% year-to-date, and there are no signs that this rally is going to end anytime soon.
This movement in price is exactly why I like this company. For those who are not familiar with the style of investment analysis I employ, I focus on investments that contain compelling price charts. Utilizing technical analysis, I generate trading strategies based on the signals and indicators that I have pulled off the price chart.
I have been following CARA stock since December 2016, when bullish indications first presented themselves. Since that publication, price has appreciated appropriately. These bullish indications remain embedded; while new ones continue to mount, this serves to suggest that price will continue to look skyward.
The following Cara Therapeutics stock chart illustrates the indications that generated my initial bullish view.
Chart courtesy of StockCharts.com
Bullish tailwinds began swirling around Cara Therapeutics stock in May 2016, after a bullish Moving Average Convergence/Divergence (MACD) cross was generated. MACD is a simple and effective trend-following momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum. A bullish cross indicates that bullish momentum is now propelling the stock, and as a result, the path of least resistance is towards higher prices.
This bullish momentum was the precursor to the bullish breakout in November 2016, where two level of resistance were broken in consecutive action.
The first level that was broken was a horizontal level of resistance. This level served to reject price on multiple occasions, where CARA stock was unable to move beyond it. After the successful penetration of resistance, price returned to test the level from above, and this price action serves to suggest that the break above resistance was legitimate. This test was successful, and as a result, it is now a new level of support, and it is appropriately labeled so.
The second level that was broken was a downtrend line that defined a bear market in Cara Therapeutics stock after price peaked in August 2015. This bearish trend line was created by connecting the peaks on the price chart, and it contained price as 81.9% of CARA Therapeutics share price was erased.
Breaking above both these levels of resistance indicated that the bear market in CARA stock had concluded and that a new bull market was now in development.
Price has accelerated to the upside in appropriate fashion, and during that run, the MACD indicator has remained embedded and shows no signs of abating. This indicates that the rally remains strong, and the performance in price is a testament to the validity of technical analysis. In my original publication on December 12, 2016, I claimed CARA stock would get swept up with all the madness that was driving marijuana stocks higher, and so set $23.61 as a potential price objective. That objective is now in sight.
The following Cara Therapeutics stock chart illustrates the price action and supporting indicators that continue to suggest higher prices are likely.
Chart courtesy of StockCharts.com
In October 2016, a golden cross was generated that reinforced the bullish view that was being suggested by the MACD indicator. A golden cross is generated when the faster 50-day moving average, highlighted in blue, crosses above the slower 200-day moving average, highlighted in red. This signal is used to confirm a bull market is in development. It is wise to trade in the direction of this signal, because it is not uncommon for price to accelerate in the direction suggested by this indicator.
Shortly after this indicator was generated, a bullish trend began to develop. This trend is defined using an uptrend line that is created by connecting the valleys on the price chart. As long as Cara Therapeutics remains above this uptrend line, then it is assumed that the bullish trend is still intact.
The price action above the trend line remains constructive, indicating that the trend remains sustainable. Resistance is highlighted in purple, and breaking above resistance indicates that the new highs are likely. The price action remains simple, as price creates a new interim high, and then it returns to test support before a new high can be established. The breakout that is highlighted on the chart above indicates that a new leg towards a new interim high has begun.
Bottom Line on CARA Stock
I am bullish on Cara Therapeutics stock because all the indications on the stock chart continue to suggest that higher prices are likely. Throw in factors like it is part of both the biotech stocks market and the marijuana stocks market, and I have all the necessary ingredients to suggest that CARA stock is set to soar.