GBT Stock: Confirmed Close Above $40.00 Would Set Wheels in Motion
After a dismal couple of years, biotechnology stocks are back in vogue, and I have yet to recall a bull market in equities in which biotech stocks were not star performers, so it is quite nice to see that this once-lagging sector is again providing some leadership.
The reason why I am bringing up biotech stocks is that I have stumbled onto a compelling investment in Global Blood Therapeutics Inc (NASDAQ: GBT).
Global Blood Therapeutics is a clinical-stage biotech company that focuses on developing treatments for blood-based disorders. They are currently in late-stage trials for a treatment of sickle cell disease (SCD).
GBT’s progress in clinical trials is a compelling reason to watch this company, but, as a technical analyst, the reason why I find this investment compelling is that there’s a particular technical price pattern that has been painted on the Global Blood Therapeutics stock chart. This pattern, upon completion, will imply that much higher GBT stock prices are in development
The following stock chart illustrates the technical price pattern that has emerged.
Chart courtesy of StockCharts.com
This stock chart illustrates a technical price pattern known as a “cup and handle,” which is currently still in development.
The pattern is identified by two troughs, with the first one being much bigger than the second. These troughs were created as a result of a significant level of price resistance, which currently sits at $40.00. This level of price resistance was established in November 2015, when GBT stock gapped lower, following the release of some pertinent data about its sickle cell drug that failed to enthuse investors.
After falling below this resistance level, Global Blood Therapeutics stock returned to test the level again in March 2017, which was 16 months after this level was first established. The prolonged trading period below the $40.00 price point created the first trough, which is the “cup.”
GBT stock was unable to break above this level of price resistance in March, and it caused a correction to ensue. This correction has created the second trough, and this stock is currently testing resistance at $40.00 again. This price action has created the “handle.”
In order to complete the cup and handle price pattern, Global Blood Therapeutics stock needs to close above the level of resistance at $40.00, which has defined this pattern. Such a feat would imply that higher stock prices are on the horizon and, at first glance I would point to the previous all-time high, which currently sits at $57.00 as a potential price objective.
This is not the only price objective I will have my eye one. A completed cup and handle price pattern generates a price objective by taking the depth of the cup and extrapolating that value above the significant level of price resistance that defined the pattern. This process provides a price objective of $67.00.
Before I get ahead of myself, I must reiterate that these price objectives that I have laid out are all contingent on a successful breakout above resistance at $40.00.
I’m inclined to believe that such a feat is on the horizon because an influential momentum indicator is suggesting that bullish momentum is currently influencing the trading action in GBT stock.
This influential momentum indicator is located in the lower panel of the stock chart, and it is called the moving average convergence/divergence (MACD) indicator.
MACD uses the crossing of a signal line to determine whether bullish or bearish momentum is influencing the trading action in an investment. This indicator is very useful because, in order for an investment to stage an advance, bullish momentum is required to drive the share price higher.
My inclination is to believe that the cup and handle price pattern will be completed in the near future. That inclination is based on the notion that a bullish MACD cross was recently generated in October, suggesting that bullish momentum is influencing the trading action in Global Blood Therapeutics stock. That momentum creates a path of least resistance that leans toward higher stock prices.
A technical price pattern is developing on the GBT stock chart. Completion of this technical price pattern by closing above $40.00 will suggest that higher stock prices will follow. I am inclined to believe that a resolution is close at hand because an influential momentum indicator is suggesting that the current path of least resistance for the stock is towards higher prices.