VSTM Stock Is Geared Toward Higher Prices
Since late January, the stock market has been under duress, inundated with selling pressure. The consistent generation of new highs that characterized the price action last year has ceased. The current environment is nothing like the one that preceded it.
Last year, the stock market was able to shrug off news of a madman testing his nuclear arsenal, but that period of low volatility has ended. Volatility is currently elevated, and a random tweet by the president of United States is enough to send the markets into a tailspin.
There is a lot of uncertainty in the market right now, but that does not mean there are not investments out there that are currently leaning toward higher stock prices.
I am focusing on Verastem Inc (NASDAQ:VSTM) stock for that exact reason. There are a number of technical indications that have been generated on the Verastem stock chart that are implying that VSTM stock is currently geared toward higher stock prices.
The first indication that caught my eye was a completed technical price pattern that I have highlighted on the following Verastem stock chart.
Chart courtesy of StockCharts.com
This VSTM stock chart highlights a technical price pattern known as a descending triangle.
A descending triangle is a technical price pattern that develops when the price action is characterized by a sequence of lower highs and lower lows.
This may seem like I am describing a bearish trend, which is partially true, but this pattern differs when the sequence of lower highs and lower lows are connected using two distinct trend lines.
These two trend lines represent levels of price support and price resistance, and the converging nature of these lines is what creates the triangle price pattern.
The convergence between price support and price resistance causes energy to build within the pattern, and this stored energy is directly responsible for the power generated by the move that follows once a triangle pattern is completed.
On April 12, Verastem stock exited the descending triangle by breaking above the trend line that represented price resistance. This breakout implies that VRST stock is now likely to appreciate.
This notion of higher VSTM stock prices, as suggested by the completed descending triangle, is magnified when it is combined with the price action that preceded it.
This combined price action creates a wave structure that is highlighted on the following Verastem stock chart.
Chart courtesy of StockCharts.com
This VSTM stock chart highlights a wave structure that is responsible for creating and sustaining a bullish trend. This structure, which is constructive in nature, consists of impulse waves and consolidation waves.
The impulse waves, which are highlighted in green, are advancing in nature. They capture the stage in a bullish trend when a stock sustains a move toward higher prices.
The consolidation wave, which is highlighted in purple, is corrective in nature and it captures the stage in a bullish trend when a stock corrects and refrains from advancing.
Corrective price action is necessary in every bullish trend because it creates the necessary conditions for—once the consolidation wave is complete—a new advancing impulse wave to follow.
The descending triangle that just completed doubles as a consolidation wave, and its completion implies that a new advancing impulse wave is now in development.
This notion of higher VSTM stock prices is currently being reinforced by the moving average convergence/divergence (MACD) indicator, which is located in the lower panel of the above Verastem stock chart.
MACD is an influential momentum indicator that is used to distinguish 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.
Momentum is a very influential force, and it is why a stock cannot sustain a move in either direction unless the applicable momentum is supporting it. That’s why the wave structure coincides nicely with the signal generated by this indicator.
Impulse waves have been accompanied by a bullish MACD signal, and consolidation waves have been accompanied by a bearish MACD signal.
The completion of the descending triangle consolidation wave has coincided with a bullish MACD cross. This suggests that the consolidation wave has run its course, that a new advancing impulse wave is now in development, and that higher VSTM stock prices are expected.
I am bullish on Verastem stock because a number of technical indications are suggesting that it is currently leaning toward higher prices.
Because my bullish view on VSTM stock is contingent on technical signals, I will maintain my bullish view until there are indications suggesting that this view is no longer warranted.