EXAS Stock: Path of Least Resistance
The biotech stocks have failed to follow suit with the major market indices, and are underperforming, to say the least. I am finding it difficult to remember a time when the NASDAQ index was making new all-time highs and the biotech stocks were not participating. I have a slight inclination that is making me believe that this underperformance will not last. This inclination is the reason why I am focusing on EXACT Sciences Corporation (NASDAQ:EXAS) stock.
I like EXAS stock for a number of reasons, and aside from being a small-cap biotech stock, it has an intriguing price chart. This intriguing price chart is suggesting that higher Exact Sciences stock prices are likely.
A quick note to those who haven’t had the pleasure of reading any of my previous columns: I generate my investment views on a potential investment by using technical analysis. This method of investment analysis is based on the notion that historical price and volume data can be used to discern a price trend and forecast future prices.
As a result, I spend much of my time scanning price charts, deciphering price patterns and technical indicators. I have amassed nearly two decades of experience in this method of analysis, because I recognized long ago the value that this method of analysis brings to my investment strategies.
The following price chart illustrates the technical indicators that are supporting the current advance in EXACT Sciences stock.
Chart courtesy of StockCharts.com
An impressive run towards higher prices began in May 2016. This run contains the quintessential characteristic of a bullish price action, which paints a picture on the price chart that begins in the lower left and ends in the upper right.
This bullish trend is easily captured by using a simple uptrend line. The uptrend line is created by simply connecting the troughs on the price chart. This uptrend line can be used an effective tool, and it’s quite simple to use.
The trend line acts as a line in the sand; trading above it means that a bull market is still in development, and therefore, higher prices are expected to follow. Trading below this trend line would serve to suggest that a bullish move towards higher prices has concluded, and that a larger correction is set to ensue.
EXACT Sciences shares are trading firmly above the uptrend line, which suggests that higher prices are likely to continue. This bullish view is further supported by the golden cross that was generated in July 2016.
A golden cross is a bullish indicator that is produced when the faster 50-day moving average (highlighted in blue) crosses above the slower 200-day moving average (highlighted in red). This indicator is popular among investors because it is used to confirm that a bull market is in development. This indicator was generated in July 2016, and there are no signs that this indicator will avert any time soon. This is because EXAS stock is currently trading above both moving averages that generated this bullish indicator.
The following price chart illustrates further indications that support an advance in EXACT Sciences stock.
Chart courtesy of StockCharts.com
The bullish price action off the low that was created in May 2016 has been constructive. Constructive price action consists of a two-wave structure. The first wave is an impulse wave, which is highlighted in green on the chart above, and a consolidation wave, which is highlighted in purple.
The objective of an impulse wave is to advance the price of a stock. The objective of a consolidation wave is to alleviate any overbought conditions that were created in the advance, and to set up the next impulse wave. Constructive price action is essentially made up of building blocks that are required to sustain a lasting trend.
The moving average convergence/divergence (MACD) indicator, located in the lower panel of the above chart, has been instrumental in confirming the predominant wave that is in play. MACD is a simple and effective trend-following momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum.
In October 2016, a bearish MACD cross was generated, indicating that bearish momentum was propelling EXAS stock and, as a result, the path of least resistance was geared towards lower prices. This indicator served to confirm that the impulse wave that began in May 2016 had concluded, and suggested that a consolidation wave was in development.
In January 2017, a bullish MACD cross was generated, indicating that the bullish momentum was once again propelling EXACT Sciences stock. The path of least resistance is now geared towards higher prices. This indicator effectively confirmed that the consolidation wave had concluded, and served to suggest that a new impulse wave was in development.
Bottom Line on EXACT Sciences Corporation
I am bullish on this small-cap biotech investment because there are indications on the EXAS stock chart that suggest that the path of least resistance is geared towards higher stock prices. I will continue to hold a bullish view on EXACT Sciences stock until there are indications on the price chart that suggest that another view is warranted.