SENS Stock: Backtests Act Like Springboards
A trade war is currently being waged, and it is the catalyst that is currently causing turbulent market conditions. As I have said in the past, the prospects of a trade war are concerning, but as long as the major market indices continue to trade above key levels of price support, I will maintain a bullish bias under the expectation that higher index values will prevail.
In this turbulent market environment, a number of sectors are currently pushing higher, such as small caps and healthcare stocks. So it shouldn’t be too surprising that I am focusing on Senseonics Holdings Inc (NYSEAMERICAN:SENS) stock, as the company just happens to fall into both categories.
This is not my first time focusing on Senseonics stock, but actually the third time in as many months. I am returning to focus on it because I wanted to follow up on a report published in June 2018. Since then, there have been constructive developments that are reaffirming my view that much higher stock prices are on the horizon.
Before I point out the new developments, I will outline the technical price pattern that peaked my interest in the first place. This same pattern was responsible for generating my bullish view on Senseonics stock:
Chart courtesy of StockCharts.com
The completed technical price pattern highlighted on the above chart is known as a “cup and handle.” These are created when a significant level of price resistance contains the stock price, while also preventing it from advancing. On the SENS stock chart, this level of price resistance resides at $4.00, and the inability to advance beyond it caused the stock price to sell off in response.
These sell-offs created two distinct troughs, where the first was much larger than the second. These troughs are what characterize a cup-and-handle price pattern.
On June 15, 2018, Senseonics stock finally managed to close above resistance, which completed the cup-and-handle price pattern. The completion suggests that higher stock prices are likely to follow for one simple reason: there is no longer a level of price resistance to contain the stock price from advancing.
The great thing about cup-and-handle price patterns is that aside from just suggesting that higher stock prices are on the horizon, this pattern can also be used to generate a price objective for the move that is likely to follow.
This price objective is obtained by taking the depth of the “cup” and extrapolating its value above the significant level of price resistance that was responsible for creating the pattern. Applying this method suggests that $6.60 is a viable price objective for Senseonics stock.
What distinguished this pattern from a typical cup-and-handle price pattern is that the significant level of price resistance that defined this pattern was also the previous all-time high.
This characteristic changes things quite considerably. When a stock breaks above a long-standing high like this one, there is nothing left to contain the stock price from advancing, which is why the sky becomes the limit.
This characteristic is among my favorite, and it is shared among some of some of the best-performing names like Facebook, Inc. (NASDAQ:FB) and Shopify Inc (NYSE:SHOP). Once these stocks broke above their long-standing highs, an epic move toward higher prices followed. This characteristic is why I could not only foresee SENS stock hitting $6.60, but moving far beyond it.
The price action following the breakout is why I am returning to focus on SENS stock. The price action has been very constructive and is reinforcing the notion that higher prices are likely to follow, as seen on the chart below:
Chart courtesy of StockCharts.com
This SENS stock chart illustrates that after the cup-and-handle price pattern was completed, the stock prices continued to appreciate in the days ahead, tacking on 24.77% in gains. After the price peaked, it has returned to test the significant level that was responsible for creating the cup-and-handle pattern.
This type of price action is called a backtest, and it serves to reaffirm that the original break above resistance was legitimate while simultaneously establishing this price point as a new level of support.
Backtests act like springboards, so once this one is complete, the trend towards higher prices is set to resume.
I am bullish on Senseonics stock because a completed technical price pattern is suggesting that much higher SENS stock prices are ahead. I believe the corrective price action following the completion of this pattern is only serving to reaffirm my bullish view.