GBT Stock Needs to Hold This Level of Price Support

GBT Stock: A Successful Backtest Acts Like a Springboard
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GBT Stock: Successful Backtest Acts Like a Springboard

The market indices are currently plagued by wild market swings, and the elevated level of volatility that began at the end of January continues to dominate the trading action.

This is an unsettling time for passive investors because markets that are characterized by elevated levels of volatility are usually geared toward lower prices. As a result, many high-flying stocks have taken a downturn in recent weeks.

I am not fazed by this, and I continue to believe that volatility will subside, the market will regain its stature, and another attempt at higher index values will be made.

That is why I believe that the weakness that the markets have endured should be embraced rather than shunned. It gives investors a second chance to pick up some of those sought-after, high-flying names that are still technically sound.

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One such name is Global Blood Therapeutics Inc (NASDAQ:GBT) stock, which I previously highlighted in a December 5, 2017 publication titled “GBT Stock Is All Set for an Explosive Move Toward Higher Prices.”

In that article, I outlined a number of technical developments that were coming together in order to suggest that a move toward higher GBT stock prices was on the horizon. These developments played out as expected and, in the weeks following that report, Global Blood Therapeutics stock appreciated by 63.98%.

I am returning to focus on this stock because the recent market turmoil has caused GBT stock to correct. It is currently testing the technical price pattern that was responsible for suggesting that GBT shares were set to appreciate.

The technical price pattern I am referring to is highlighted on the following Global Blood Therapeutics stock chart.

Chart courtesy of StockCharts.com

The technical price pattern highlighted on the above GBT stock chart is a cup and handle price pattern. Cup and handle price patterns are created when a significant level of price resistance contains the stock price and prevents it from advancing. This inability to advance creates two distinct troughs, with the first tough being much larger than the second. These troughs resemble a teacup, hence the name of this pattern.

The significant level of price resistance responsible for creating the cup and handle price pattern resided at $42.00. On January 9, 2018, Global Blood Therapeutics stock finally broke out above resistance, completing the cup and handle price pattern. The completed pattern is the signal that correctly suggested that higher GBT stock prices were likely to follow.

After a significant move toward higher stock prices, GBT stock began to correct. This correction coincided with a sell-off that has stricken the market indices. The result of this correction is that Global Blood Therapeutics stock has returned to the level of price resistance that set it free in the first place.

Returning to test a previous level of price resistance is known as a backtest, and this type of price action is a very common occurrence. Backtests serve to reinforce the notion that the original breakout above resistance was legitimate, while simultaneously establishing this price point as a new level of price support.

Successful backtests act like springboards and, once they are complete, the predominant trend has a tendency to accelerate. In order to confirm that the backtest is complete, GBT stock needs to maintain its footing above $42.00 and stage an advance.

I believe that the simple technical tool highlighted on the following Global Blood Therapeutics stock chart will indicate when GBT stock is likely to appreciate.

Chart courtesy of StockCharts.com

This stock chart focuses on the price action that developed after GBT stock peaked in February of this year.

This price action has been characterized by a sequence of lower lows and lower highs, which is the quintessential characteristic that defines a bearish trend.

Connecting the series of lower highs creates a downtrend line, and this trend line acts like a level of price resistance. There have been a number of attempts to move beyond this downtrend line, but, thus far, all these attempts to move beyond have been thwarted.

Now that the previous level of resistance has been tested, I will be looking for Global Blood Therapeutics stock to break above this downtrend line in order to suggest that the backtest has run its course and that higher GBT stock prices are ready to prevail.

Analyst Take

Global Blood Therapeutics stock is currently testing the price point that first implied that this stock was likely to appreciate.

In order to maintain its bullish stature, GBT stock needs to maintain its footing above this price point and stage a move toward higher stock prices.