VSTM Stock: Bullish Technicals Continue to Mount
In the midst of the sell-off that occurred earlier this year, I pointed out that despite the market’s corrective price action, there were many pockets of strength in the market. As a result, a number of stocks were poised for further gains.
One stock that stood out in particular was Verastem Inc (NASDAQ:VSTM).
On April 16, 2018, I published a report titled “VSTM Stock: This Is Why Verastem Stock Is Likely to Appreciate.” In that report, I outlined why I believed that VSTM stock was likely to appreciate. My beliefs were centered around a number of technical indications that were supporting such an outcome.
I am returning to focus on the stock once again because my beliefs did not disappoint. Since that date, Verastem stock has appreciated to the tune of 141.36%. I have reason to believe that further gains are on the horizon.
The first technical indication that caught my eye and spawned my bullish beliefs was a completed price pattern, which is highlighted on the following Verastem stock chart.
Chart courtesy of StockCharts.com
The technical price pattern that initially caught my eye, which is captured on the VSTM stock chart above, is a descending triangle.
A descending triangle is a technical price pattern that develops when the price action is characterized by a series of lower highs and lower lows. By definition, this is the quintessential characteristic of a bearish trend. In this case, however, it is the furthest from the truth.
What sets aside this pattern from a bearish trend is the picture it paints when the peaks and troughs are connected using trend lines.
These two trend lines are important because they not only depict a triangle price pattern but they also pinpoint where significant levels of price support and price resistance reside. This is important information because, in order to complete the price pattern, the stock price needs to either break above price resistance or fall below price support.
Once one of these events occurs, a powerful move is expected to follow. The reason why is that triangle patterns have the ability to store energy as they develop. This energy is only released once the pattern is completed.
On April 12, Verastem stock exited the descending triangle by breaking above the trend line that represented price resistance. The completion of this pattern correctly implied that a powerful move toward higher VSTM stock was likely to follow.
In June, another triangle began to form. This time, it was in the form of a symmetrical triangle. This pattern differs slightly in that it is characterized by a series of lower highs and higher lows. However, its implications once it is completed are exactly the same.
On August 9, 2018, the symmetrical triangle was completed. Just like the triangle that preceded it, it marked the point in time where VSTM stock commenced its next leg toward higher stock prices.
Even though the gains since April have been incredible, I still happen to believe that higher prices are still on the horizon. My beliefs are based on my perception that these triangles are an integral part of a wave structure that creates and sustains bullish trends.
This wave structure and the momentum indicator that has been supporting it are highlighted on the following Verastem stock chart.
Chart courtesy of StockCharts.com
This Verastem stock chart highlights a wave structure and an influential momentum indicator that have been responsible for creating and sustaining a bullish trend in VSTM stock.
This wave structure consists of impulse waves and consolidation waves.
The impulse waves, which are highlighted in green, are advancing in nature. These waves capture the stage in a bullish trend when a stock sustains a progressive move toward higher prices.
The consolidation wave, which is highlighted in purple, is corrective in nature. This wave captures the stage in a bullish trend when a stock corrects and refrains from advancing. Corrective price action is necessary in the development of every bullish trend because it creates the necessary conditions so an advancing impulse wave can follow.
The descending triangle doubles as a consolidation wave. Its completion continues to suggest that an advancing impulse wave is in development.
The notion that this impulse wave is still in development is being supported by the moving average convergence/divergence (MACD) indicator.
MACD is an influential momentum indicator that uses the crossing of a signal line in order to determine whether 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 why a stock cannot sustain a move in either direction unless the applicable momentum is supporting it.
It is also why the waves within the wave structure have coincided with the signals generated by the MACD indicator. Impulse waves have coincided with bullish MACD signals. Consolidation waves have coincided with bearish MACD signals.
In April, a bullish MACD cross coincided with the completion of the descending triangle, confirming that an impulse wave was in development.
The MACD indicator is currently in bullish alignment, suggesting that this impulse wave is still in development. As long as it remains in bullish alignment, it will support the notion that higher Verastem stock prices are on the horizon.
The development and completion of a symmetrical triangle within this impulse wave is reinforcing the notion that VSTM stock has further to run.
I am maintaining my bullish view on Verastem stock because the technical indications responsible for creating my bullish view in the first place are still in bullish alignment, supporting the notion that higher stock prices are still in development.
I will maintain this bullish view on VSTM stock until there are technical indications suggesting that a bullish view is no longer warranted.