RDNT Stock: Embedded Patterns Are Powerful
Things are not always as they seem. For example, the S&P 500 and the Dow Jones Industrial Average have been correcting for much of this year, and these two major market indices have not forged a new high since January 2018.
Based on the performance of these indices, one might assume that stocks have not been performing well this year, but that is not actually true.
A number of sectors have been standouts in 2018. In recent weeks, these sectors have pushed higher to forge new all-time highs. The healthcare and biotechnology sectors are among the sectors currently outperforming, and they have played a hand in pushing the Nasdaq composite index to new all-time highs.
I am focusing on RadNet Inc. (NASDAQ:RDNT) stock because I believe that this healthcare stock has just begun its journey toward much higher RDNT stock prices. My bullish beliefs are centered around a number of embedded technical price patterns that have developed on the RadNet stock chart that are supporting such an outcome.
The first technical price pattern is highlighted on the following chart.
Chart courtesy of StockCharts.com
The technical price pattern highlighted on the RDNT stock chart is a cup and handle price pattern.
Cup and handle price patterns are characterized by two distinct troughs. These troughs are created because a significant level of price resistance prevents the stock price from advancing.
When identifying the pattern, the rule of thumb is that, in order to qualify as a cup and handle price pattern, the first trough must be much bigger than the trough that follows.
This significant level of price resistance responsible for creating the cup and handle price pattern resided at $9.50.
This level of price resistance was first established in October 2007, which means that the pattern was in development for 10 years. The amount of time it took to develop is important, because large patterns carry more significance.
On August 22, 2017, RadNet stock finally gathered enough strength to break above resistance, completing that pattern and suggesting that higher prices were likely to follow.
After an initial surge, the stock price returned to test the significant level of price resistance from above. This price action is referred to as a backtest, and it serves to reaffirm that the breakout above resistance was legitimate, while simultaneously establishing this price point as a new level of price support.
Backtests act like springboards, and, once this test was completed, the stock price appreciated as expected. Now, further gains are expected to follow.
The great thing about this pattern is that, aside from just suggesting that higher prices are likely to follow, it can be used to generate a potential price objective for the move that is expected to follow.
This price objective is obtained by taking the depth of the cup and extrapolating that value above the significant level of price resistance that defined this pattern.
Applying this method produces a potential price objective of $19.00, which suggests that RadNet stock can run another 26.3% from current prices. That is respectful, but I believe that the RDNT stock price will push beyond this price objective.
My beliefs are centered around another technical price pattern, which is highlighted on the following RDNT stock chart.
Chart courtesy of StockCharts.com
This RadNet stock chart highlights a technical price pattern known as an ascending channel.
An ascending channel is characterized by price action that contains a series of higher highs and higher lows, which is the quintessential characteristic of a bullish trend. This bullish trend has been in development since December 1999. Since that date, there has been a slow progressive move toward higher prices.
Capturing the ascending channel was accomplished by connecting the peaks and troughs that were created by the price action. This process created two upward-sloping trend lines, which pinpoint where price support and price resistance reside.
These levels are important because, as long as RDNT stock is contained between the two trend lines, I can only make one assumption: a bullish trend is in development and higher prices are on the horizon.
The cup and handle price pattern that was highlighted earlier was embedded within this ascending channel. Its completion is suggesting that higher prices are now in development. As a result, I can only assume that resistance outlined by this ascending channel is likely going to be tested.
This trend line currently resides at $50.00, but, because this metric is upward-sloping, the longer it takes to get there, the higher the price objective becomes.
I am bullish on RadNet stock because a completed technical price pattern is suggesting that higher RDNT stock prices are now in development. This pattern was embedded within another pattern, implying that the move that follows has the potential to be quite exciting.