TRVN Stock: Marking a Very Significant Inflection Point
Looking for price patterns on a stock chart has proven to be a fruitful experience. These patterns are instrumental in creating trading strategies and helping with investment decisions. These patterns can help determine which direction a stock is heading in next.
Technical price patterns can be placed into two categories: continuation patterns and reversal patterns.
Continuation patterns are the stage in a trend when a stock price takes a breather before resuming the predominant trend. On average, most patterns that emerge on a stock chart are continuation patterns.
Reversal patterns are the stage in a trend when the stock price reverses course and initiates a new trend. Reversal patterns do not present themselves as frequently as continuation patterns, but they are more profitable because they identify when the stock price has peaked or bottomed.
Catching a stock just as it initiates a new trend is very rewarding, but at the same time, it is the most difficult task to accomplish. It is easier to identify a trend that is in development than a trend that is about to reverse.
The biggest pitfalls that investors fall into when they believe a stock is about to reverse course is that the stock price fails to do so and the predominant trend continues.
This is why traders have coined the phrase “The trend is your friend.” Betting against a predominant trend has proven to be a losing venture.
Even though catching a bottom or a top is a difficult task, it is not impossible. This is why I am currently focusing on Trevena Inc (NASDAQ:TRVN). There’s a pattern currently developing on the Trevena stock chart that could mark a very significant inflection point.
The technical price pattern I am referring to is captured on the following TRVN stock chart.
Chart courtesy of StockCharts.com
The potential reversal pattern that is currently in development on the above stock chart is a double bottom.
A double bottom price pattern is identified by two distinct troughs. These troughs are usually of similar size and are separated by a peak in between.
In order to complete this pattern, the stock price needs to break above the level of price resistance earmarked by the peak. Once this event occurs, it will imply that a trend reversal is in play, and that higher prices are likely to follow.
The price resistance level that currently defines the potential double bottom pattern is at $2.30. If Trevena stock can sustain a close above this price point, it will suggest that a new trend toward higher prices has begun.
The reason why I continue to refer to this pattern as a “potential” reversal pattern is that it could easily become a continuation pattern.
For that to happen, all that TRVN stock would need to do is break below price support, which resides at $1.35. This would create a new all-time low and would ultimately imply that lower prices are still in development.
The reason why I suspect that a reversal pattern may be in play is that a very influential momentum indicator is suggesting that the tide has begun to turn.
This momentum indicator is captured on the following stock chart.
Chart courtesy of StockCharts.com
This chart captures a bearish trend that has been in development since the stock price peaked at $13.57 in September 2015.
Since then, lower prices have prevailed. This move toward lower TRVN stock prices has been accompanied by a bearish moving average convergence/divergence (MACD).
MACD is an indicator that helps distinguish whether bullish or bearish momentum is influencing the price action in a stock. This is important because momentum has a lot of influence on the direction that a stock is trading in.
The bearish MACD signal was indicating that bearish momentum was paving a path toward lower Trevena stock prices.
In June, the MACD indicator swung into bullish alignment, suggesting that the bearish trend was no longer being supported by bearish momentum. This opened the possibility of a trend reversal, wherein a bullish trend could follow.
I am watching the price action on the Trevena stock chart because I have an inclination that a potential trend reversal is currently in development.
My beliefs will be vindicated once TRVN stock sustains a close above $2.30, completing the reversal pattern.