RARE Stock: Coinciding Signals Are a Powerful Indication
Just as it seems like the market is primed to make a sustained move toward higher prices, there is a piece of news that spoils the sentiment, sending the markets into a tailspin. This is the type of price action that has characterized much of this year, making it quite a frustrating environment for investors.
I have and continue to hold a bullish view on these markets, and I have good reason, too. For one, the market indices continue to stay perched above very important levels of price support, and the elevated levels of volatility that persisted in the first quarter have subsided.
On May 16, 2018, the Russell 2000 index went on to forge a new all-time high. The Russell 2000 is the small-cap index, and if small-cap stocks are staging an advance and forging new highs, it bodes well for the indices. It suggests that the move I have been looking for is not far off and, therefore, my bullish views are very much likely to get vindicated.
As I just mentioned, small caps are currently are leading the pack, so it’s only fitting that I focus on Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) stock, which is a small-cap stock. The reason why I have chosen Ultragenyx stock is because it is on the verge of breaking above a very important level of price resistance that would set the stage for further gains.
This level of price resistance is highlighted on the following RARE stock chart.
Chart courtesy of StockCharts.com
This stock chart illustrates that since July 2015, the Ultragenyx stock price has been in a bearish trend. This bearish trend has been characterized by a progressing move toward lower prices, consisting of a series of lower highs and lower lows, which is the quintessential characteristic that defines a bearish trend.
Capturing this bearish trend was accomplished by using a downtrend line. This downtrend line was created by connecting the sequence of lower highs that characterize this bearish trend.
This downtrend line acts as a significant level of price resistance, and this is the very important level of price resistance that RARE stock is currently testing.
Using the downtrend line as a tool is quite simple, and as long as Ultragenyx stock is trading below it, I can only assume that the bearish trend is in development and, therefore, lower prices will prevail.
In order to negate the bearish implications suggested by the downtrend line, RARE stock needs to break above it. A breakout would imply that the bearish trend that began in July 2015 has finally run its course, opening up the door for a bullish trend to follow.
A bullish trend is defined by a sustained move toward higher prices, which requires bullish momentum. The indicator located on the following Ultragenyx stock chart has a propensity to indicate when such a development is likely to occur.
Chart courtesy of StockCharts.com
The moving average convergence/divergence (MACD) indicator located in the lower panel of the Ultragenyx stock chart is capable of deciphering momentum.
MACD uses the crossing of a signal line to determine if bullish or bearish momentum is influencing the price action in a stock. Bullish momentum implies that a stock is geared toward higher prices, while bearish momentum implies that a stock is geared toward lower prices. This is very pertinent information because a stock cannot sustain a move in either direction unless the applicable level of momentum is supporting it.
For example, the entire time the bearish trend has been in development, the MACD indicator has been in bearish alignment, supporting the notion that lower RARE stock prices are likely to prevail.
In order to negate the bearish implications suggested by this indicator, Ultragenyx stock needs to generate a bullish MACD cross, which would support the notion that higher RARE stock prices are likely to prevail.
The good news is that the signal lines that create this signal are currently converging. This event is happening at the same time that resistance outlined by the downtrend line is being tested. A break above the downtrend line would also generate a bullish MACD signal.
These coinciding signals are enough of an indication for me to believe that higher RARE stock prices would follow.
Ultragenyx stock is on the verge of breaking out above a significant level of price support, while simultaneously generating a bullish momentum signal. These coinciding signals would imply that higher RARE stock prices are likely to follow.