KITE Stock: Taking a Victory Lap
Well, it didn’t really take long for my bullish view on Kite Pharma stock to get vindicated. Just yesterday alone, KITE stock was trading higher by 28.48%. The catalyst driving the gains was a definitive agreement between Gilead Sciences, Inc. (NASDAQ: GILD) and Kite Pharma Inc (NASDAQ: KITE), where Gilead agreed to acquire the stock at $180.00 per share, which values the deal at $11.9 billion.
This buyout price represents a 94.4% return from the price point where my original bullish view was initiated. What makes this performance number even more impressive is that these returns manifested over a 10-week time span.
This type of performance is a testament to the method of analysis I use to generate my views on a potential investment. This method of analysis is called technical analysis, and I have been studying and applying it for nearly 20 years. Technical analysis is based on the notion that historical price and volume data can be used to speculate on what the future may bring. As a result, I spend much of my time scouring stock charts looking for compelling price patterns and indications.
I originally highlighted Kite Pharma on May 8, 2017 in a publication where I outlined a technical price pattern that was in development and potentially suggesting that a large move was in the making. This potential suggestion came to fruition on June 20, 2017, when KITE stock completed the technical price pattern. This completed pattern was the focus of the publication that followed up on my original report. For those interested, that publication was titled “All Eyes on Kite Pharma Stock as It Breaks Out” and it was published on June 22, 2017, when Kite Pharma was trading at $92.59.
The following Kite Pharma stock chart illustrates the technical price pattern that was responsible for generating my bullish view on this investment.
Chart courtesy of StockCharts.com
On June 20, 2017, I became bullish on KITE stock when it broke above a very key and significant level of price resistance. This level of price resistance sat at $90.00, and it is highlighted on the stock chart above using a horizontal trend line.
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This level of resistance was established in January 2015, and it contained the price from advancing for over two-and-a-half years. Every attempt to move beyond it was thwarted and a significant sell-off quickly followed.
This inability to stage an advance is a characteristic shared by most consolidation waves, which are one part of the two-wave structure that makes up constructive price action.
Constructive price action consists of impulse waves and consolidation waves, and these waves in an alternating wave structure create the necessary environment where a trend can evolve and flourish.
I have highlighted this wave structure on the stock chart above. The impulse wave is highlighted in green, and it serves to define the period in a trend when the stock price stages an impulsive move to the upside. The consolidation wave is highlighted in purple, and it serves to define the period in a trend where the gains from the previous advance are digested in order to alleviate any overbought conditions that were created. This sets the stage for a new impulse wave to develop.
On June 20, 2017, when the Kite Pharma stock price closed above the resistance level at $90.00, it was an indication that the consolidation wave was complete, and therefore, it was suggesting that an impulse wave was in development.
The break above the resistance level, which completed the consolidation wave, is why I believed a monster run in KITE stock was in the making. These beliefs did not disappoint and were quickly vindicated because an impulse wave did indeed develop, and the meteoric rise began. Little did I know that Kite Pharma stock was going to be bought out by Gilead, providing an incredible return of 94.4% in a span of 10 weeks.
The Kite Pharma stock chart was used as a tool to determine which direction KITE stock was heading in next. This tool accomplished this task with flying colors, as the stock price moved well beyond expectations. This astonishing level of performance is a testament to the value technical analysis can provide when it is applied correctly.