Embedded Pattern Supports the Notion of a Higher GWPH Stock Price
Just as I think the markets are ready to make a sustained move toward higher prices, a catalyst emerges to remind me that the current market is very turbulent. As a result, caution is still warranted.
The recent bout of news that is causing investors to push the panic button is the escalating nature of the trade war that is currently being waged.
Any part of this trade war that could have been dismissed can no longer be, because this tit-for-tat affair is spiraling out of control. Any way you spin it, there is nothing positive that can come out of these developments if they continue in their current direction.
The only good news I have to offer is that the recent bout of weakness has not done any technical damage to the indices (as of yet).
Therefore, I can only assume that the market is still poised for higher prices. With this assumption in mind, I continue to search for stocks that are poised to make moves toward higher prices.
It should come as no surprise that I am now focusing on GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH), since I am inclined to believe that GW Pharmaceuticals stock is poised to make a sustained move toward higher prices.
These bullish beliefs are based on a number of technical indications that are currently supporting such an outcome.
This first indication is highlighted on the following GWPH stock chart.
Chart courtesy of StockCharts.com
This chart captures a bullish trend that has been in development since the stock first began trading in April 2013.
This bullish trend, and all of the ones that came before it, is characterized by price action that contains a series of higher highs and higher lows. That is the quintessential characteristic of a bullish trend.
The bullish trend was captured using an uptrend line, which was produced by connecting the troughs that were created by the series of higher lows. This uptrend line not only captures the bullish trend, but also identifies where price support resides.
The uptrend line is very significant because it has been supporting the GWPH stock price for five years. As long as the stock price continues to trade it, I can only assume that the bullish trend remains in development.
This notion of higher stock prices is being reaffirmed by the technical price pattern that was just completed above the uptrend line.
This technical price pattern is highlighted on the following GW Pharmaceuticals stock chart.
Chart courtesy of StockCharts.com
The completed technical price pattern highlighted on the above chart is a cup-and-handle price pattern.
Cup-and-handle price patterns are created when a significant level of resistance contains the stock price and prevents it from advancing. This inability to advance creates two distinct troughs.
To identify a cup-and-handle price pattern, the first trough is always much larger than the second. These troughs, which resemble a teacup, characterize this pattern.
The significant level of price resistance that is responsible for creating this pattern was first established in June 2015. Three years later, in May 2018, GWPH stock was finally able to break above this metric, completing the cup-and-handle price pattern.
The completed cup-and-handle pattern is currently suggesting that much higher prices are likely to follow.
The great thing about this pattern is that it not only suggests that a large move is on the horizon, but the pattern itself can be used to create a price objective.
This price objective is obtained by taking the depth of the cup and extrapolating that value above the level of price resistance that was responsible for creating the pattern. Putting this method to work suggests that GW Pharmaceuticals stock can climb as high as $240.00, representing a 65.5% return from the current prices.
After breaking above price resistance, GWPH stock has returned to test the level of price resistance that was responsible for creating the cup-and-handle price pattern.
Returning to test a previous level of price resistance is known as a backtest. This type of price action is a very common occurrence. It reinforces the notion that the original breakout above resistance was legitimate, while simultaneously establishing this price point as a new level of support.
Backtests act like springboards. Once they are completed, the stock price has a tendency to accelerate toward the path of least resistance, which is currently toward higher prices.
This suggests that the GW Pharmaceuticals stock price objective of $240.00 is now in the crosshairs.
I am bullish on the prospects of GW Pharmaceuticals stock because a number of technical indications are currently supporting the notion that higher prices are on the horizon.
This view is contingent on the GWPH stock price maintaining its footing above price support, which currently resides between $135.00 and $140.00.