GHDX Stock: The Path of Least Resistance Is Toward Higher Stock Prices
The current market environment seems very shortsighted. The reason I say that is, every time there is an escalation in this tit-for-tat trade war, the market sells off for a single day and then shrugs it off the next—and higher values prevail.
I am starting to wonder when investors will finally understand what is going on and completely bypass the sell-off the next time tensions rise in this trade war.
I, for one, have completely dismissed the ramifications of a trade war. This market is strong and well supported, which is why I continue to believe that much higher index values will prevail.
There are a number of sectors supporting the move toward higher index values. The ones that are particularly strong are the biotechnology and small-cap stocks. The reason why I single out these two sectors is that I am focusing on Genomic Health, Inc. (NASDAQ:GHDX) stock, which just happens to fall in both categories.
Sectors aside, I believe that Genomic Health stock is primed for further gains. My beliefs are based on a number of technical indications that have been generated on the GHDX stock chart.
The first indication is highlighted on the following chart.
Chart courtesy of StockCharts.com
The above Genomic stock chart highlights a significant level of resistance that resided at $38.00. This level of resistance was first established in July 2012. Then, for the next six years, it thwarted four valiant attempts at moving beyond it.
This resistance level is the definition of a long-standing high. Traders and investors alike position themselves around such developments because, once resistance is finally broken, there is nothing left to contain the stock price from advancing. That opens the door to exponentially higher prices.
On May 30, 2018, Genomic Health stock was finally able to break above this level of price resistance. This break above the long-standing high has created a backdrop wherein higher GHDX stock prices are likely to prevail and $38.00 is the new floor.
The forecast of Genomic stock prices created by this bullish backdrop is being reinforced by the breakaway gap, which is highlighted on the stock chart.
Breakaway gaps are significant because they rarely get filled and almost always suggest that a new trend has begun. This breakaway gap appeared a few days after the long-standing high was broken, reinforcing the idea that the break above resistance was legitimate.
The price action that followed the breakaway gap has been constructive, suggesting that further gains are very likely.
The following chart captures this constructive price action.
Chart courtesy of StockCharts.com
This GHDX stock chart has been annotated in order to highlight the constructive price action that followed the break above resistance.
Constructive price action contains impulse waves and consolidation waves. It is responsible for creating and sustaining a trend.
Impulse waves are advancing in nature and capture the stage in a bullish trend when a stock sustains a move toward higher prices. Consolidation waves are corrective in nature and capture the stage in a bullish trend when the stock price corrects and refrains from advancing.
In a bullish trend, impulse waves lead and consolidation waves follow. These waves produce the stair-step price action that bullish trends are so famous for.
Genomic Health stock is currently within a consolidation wave. Breaking above price resistance (which currently resides at $54.00) would complete the wave, suggesting that a new impulse wave is likely to follow.
An impulse wave cannot follow unless it is supported by the applicable moving average convergence/divergence (MACD) signal.
MACD is a momentum indicator that determines whether bullish or bearish momentum is influencing the price action in a stock.
Bullish momentum implies that a stock is geared toward higher prices, while bearish momentum implies that a stock is geared toward lower prices.
A stock cannot sustain a move in either direction unless the applicable level of momentum is supporting it. This is why impulse waves are accompanied by bullish MACD signals, and why consolidation waves are accompanied by bearish MACD signals.
I am waiting for the completion of the consolidation wave on the Genomic Health stock chart to coincide with a bullish MACD cross. Once these indications are generated, I will have the necessary information to confirm that the stock is primed for further gains.
My belief that GHDX stock is primed for further gains is based on a number of technical indications that are currently supporting that belief.