Global Blood Therapeutics Stock Breaks Out; These Are the Implications

Global Blood Therapeutics Stock
iStock.com/Peshkova

GBT Stock: Higher Prices Are Now in Development

It didn’t take long to vindicate my bullish stance on Global Blood Therapeutics Inc (NASDAQ:GBT) stock, because the same day my report, “Eyeing These Global Blood Therapeutics Stock Price Developments,” was published, GBT stock appreciated to the tune of 19.07% on the heels of receiving a Food and Drug Administration (FDA) breakthrough therapy designation for “Voxelotor” for the treatment of sickle cell disease.

This FDA designation was the catalyst that sent the Global Blood Therapeutics stock price higher, but my bullish inclination toward this investment had little to do with the pending news, and instead had everything to do with the GBT stock chart.

Using a company’s stock chart in order to generate an investment view on it is a method called technical analysis. This method is predicated on the notion that historical data can be used to forecast what the future may bring. This may sound like a silly notion, but I found out two decades ago that, when this method is applied correctly, the results speak for themselves. As a result, I have been studying and applying this method ever since.

The Completed Price Pattern

I have had my eyes on GBT stock since November 1, 2017, because a particular price pattern was developing on the company’s stock chart. This pattern is highlighted on the following Global Blood Therapeutics stock chart.

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Global Blood Therapeutics stock

Chart courtesy of StockCharts.com

The pattern highlighted on the GBT stock chart is a cup and handle price pattern. This technical price pattern is created because a significant level of price resistance prevents the stock price from advancing.

In this case, a significant level of price resistance resided at $43.00, and that resistance level was first established in December 2015. Global Blood Therapeutics stock was contained below this level for two years and, while it was trading below it, the price chart created two distinct troughs, which created the cup and handle price pattern.

On January 9, on the heels of bullish news, GBT stock was finally able to break above this level of resistance, and it completed the cup and handle price pattern in the process. The completed cup and handle price pattern implies that higher stock prices are on the horizon, and this notion is being supported and reinforced by the moving average convergence/divergence (MACD) indicator located in the lower panel.

MACD is a trend-following momentum indicator that is used to distinguish whether bullish momentum or bearish momentum is influencing the price action in a stock. Momentum is what drives a stock in a sustained direction, so knowing which way it is headed in is very pertinent information.

As I mentioned, the MACD indicator generated a bullish cross in September 2017, and this indicator supported the completion of the cup and handle price pattern. This is why I have been watching Global Blood Therapeutics stock for the last two-and-a-half months.

The great thing about cup and handle price patterns is that, aside from just suggesting that higher stock prices are on the horizon, they can be used to create a potential price objective.

The Implications of the Completed Price Pattern

Using the cup and handle price pattern to create a potential price objective is pretty straightforward. It involves taking the depth of the cup and extrapolating that value above the significant level of resistance that defined the pattern.

The depth of the cup is $28.00 and, if you take that value and add it to $43.00 (which is where resistance resided), it produces a potential price objective of $71.00. Let me reiterate that this is just a linear price objective, and, given the frothy market environment, I would not be surprised if Global Blood Therapeutics stock blows right past this objective.

Analyst Take

Global Blood Therapeutics stock completed a technical price pattern, which is now suggesting that much higher stock prices are on the horizon. As a result, I am bullish on GBT stock and will remain so until there are indications on the company’s stock chart which suggest that another view is warranted.