NKTR Stock: This Picture Was Worth a 60.47%
The biotechnology stocks are no longer lagging and some of the best-performing names are currently within this sector. I am focusing on Nektar Therapeutics (NASDAQ: NKTR). The fact that this is a biotechnology stock is compelling, but it really has little to do with why I am currently enamored with Nektar Therapeutics stock. For those who frequent my work, you already know that the factor I seek in an investment is an intriguing stock chart, and NKTR stock has just that.
Using a company’s stock chart to generate a view on it is known as technical analysis. This method of analysis is based on the notion that previous market data can be used as a looking glass into the future. This may sound like a silly notion, but the price action on the Nektar Therapeutics stock chart is a testament to the value this method of analysis can provide.
The price action I am referring to is actually a specific technical price pattern, and its completion set the wheels in motion for an incredible run towards higher NKTR stock prices.
The technical price pattern I am referring to is highlighted on the following Nektar Therapeutics stock chart.
Chart courtesy of StockCharts.com
This stock chart highlights the technical price pattern known as a cup and handle pattern. This pattern is characterized by two distinct troughs, where the first trough is much larger than the second. These troughs are created due to a significant level of price resistance that prevents the stock prices from advancing.
This level of price resistance stood at $25.00 and it was first established in March 2017, when Nektar Therapeutics stock staged an incredible move towards higher prices following an impressive phase 3 trial for their lower back pain drug.
For the next seven months, the stock traded below this level of resistance, creating the troughs that define the cup and handle price pattern.
On November 7, Nektar Therapeutics reported solid third-quarter earnings results, and it sent the share price surging by 10.54%. This surge caused the stock price to break through the significant level of price resistance that defined the technical price pattern. This feat is highlighted on the NKTR stock chart as a breakout. The breakout implies that the pattern is complete, and therefore, higher prices are expected to follow, which is exactly what occurred.
The breakout unleashed a flurry of buying and the stock staged an incredible move towards higher prices.
The following stock chart illustrates what transpired following the breakout.
Chart courtesy of StockCharts.com
In the six days following the breakout, Nektar Therapeutics stock appreciated by a jaw-dropping 60.47%.
This move began with a positive earnings announcement, and then it was doused with accelerant on November 11, when news was released containing positive results stemming from Nektar Therapeutics’ collaboration with Bristol-Myers Squibb Co (NYSE: BMY) with regards to a number of cancer treatments.
I have highlighted the relative strength indicator (RSI) because it has reached such an extreme level that it is causing me concern.
RSI is an oscillator that used to indicate when an investment is overbought or oversold. An RSI oscillator reading below 30 is deemed oversold, while an RSI oscillator reading above 70 is deemed overbought. Currently, the RSI oscillator has a reading of 92.73, which is extremely high, and I seldom come across such an overbought indication.
When the RSI oscillator reaches such an extreme, the likelihood of a stock price correction increases. In most cases, a sharp and swift move to the downside occurs, which alleviates this overbought condition.
The last time the RSI oscillator was anywhere near this level was in March of this year, and it triggered a correction where NKTR stock corrected to the tune of 27.5% in fairly short order. I do not see why this time is any different, so I am wary that a correction can ensue at any moment.
Nektar Therapeutics stock soared by 60.47% in as little as six days following the completion of a technical price pattern that correctly suggested that higher NKTR stock prices were on the horizon. This massive gain has caused an influential indicator to reach an extreme level, increasing the risk that a correction can occur at any moment.