CPRX Stock: Bullish Trend at Risk
It has been a wild couple of weeks and I think we just witnessed a number of black swans. We went from indices creating new all-time highs to a violent sell-off spurred by higher interest rates. The Dow recorded its largest one-day point drop, which caused people to buy protection, which caused the volatility index to experience its largest one-day percentage gain.
These violent swings have created stress in the market, but for the time being, it seems as though cooler heads are likely to prevail. As a result, I have been looking for investments that are testing key levels of price support. That’s how I stumbled upon Catalyst Pharmaceuticals Inc (NASDAQ:CPRX) stock.
Catalyst Pharmaceuticals stock is currently testing a very influential level of price support, and in order to maintain its bullish posturing, the stock price needs to find its footing at this level and reverse course toward higher stock prices.
The following stock chart illustrates the significant level of price support currently being tested.
Chart courtesy of StockCharts.com
This significant level of price support was a significant level of price resistance not long ago.
This level of price resistance, which resided at $3.20, prevented CPRX stock from advancing for a duration of five months. During that time span, an inverse head and holders pattern developed.
This technical price pattern is identified by its three troughs. The first and third troughs represent the shoulders, which are usually of equal size, and the middle trough, which is the largest, represents the head. This pattern is completed when the stock price breaks above the level of resistance that was responsible for creating it.
On November 21, 2017, Catalyst Pharmaceuticals stock broke out above the significant level of price resistance, completing the pattern and suggesting that higher CPRX stock prices are on the horizon.
Over the course of the next few weeks, Catalyst Pharmaceuticals stock made a substantial move toward higher prices, taking on 37.08% in short order, substantiating the merits of this price pattern. CPRX has been correcting ever since.
This correction has caused CPRX stock to return to test the level of resistance from above. Such an event is not uncommon, and returning to test a previous level of resistance is called a backtest. It serves to reaffirm that the previous break above resistance was legitimate, while simultaneously substantiating a new level of price support.
It is actually imperative that Catalyst Pharmaceuticals stock finds its footing at this level because the bullish trend that preceded it is dependent on it.
This bullish trend is highlighted on the following stock chart.
Chart courtesy of StockCharts.com
This CPRX stock chart has been annotated and illustrates that the bullish trend that began in April 2016 has been constructive in nature.
Constructive price action is an alternating wave structure consisting of two distinct waves: an impulse wave and a consolidation wave.
The wave highlighted in green is an impulse wave and it is advancing in nature. Impulse waves define the stage in a bullish trend when the stock price makes a sustained move toward higher prices. In a bullish trend, once an impulse wave is complete, a consolidation wave follows.
The wave highlighted in purple is a consolidation wave and it is corrective in nature. A consolidation wave defines the stage in a bullish trend where the stock price corrects and refrains from advancing. For this reason, traders prefer to avoid these waves. The corrective price action that characterizes this wave is necessary in every bullish trend because it unwinds any overbought conditions that were created during the impulse wave that preceded it and sets the stage so a new impulse wave can develop.
These waves work together, feeding off each other, creating the foundation that ensures that the trend remains healthy and sustainable.
The inverse head and shoulders price pattern doubles as a consolidation wave and when it was completed, an impulse wave quickly followed and higher prices prevailed.
In order to maintain this wave structure, CPRX stock needs to maintain the level of price support it is currently testing, or it will risk invalidating the notion that an impulse wave is currently in development, suggesting that the bullish trend has run its course.
Catalyst Pharmaceuticals stock is testing a very important level of price support and CPRX stock needs to find its footing at this level or it risks invalidating a bullish trend that has been in development since April 2016.