Technical Indications Are Supporting Notion of Higher ZFGN Stock Prices
Summer has begun and, in some circles, this time of year is referred to as the summer doldrums. The reason for this title is that, during the summer months, trading volume has a tendency to dry up.
At the moment, I wouldn’t use the word “lackluster” to describe the stock market. I’d say the current market environment has more of a turbulent feel.
This turbulence is being created by anxious investors expressing their concerns regarding the escalating trade wars. This tit-for-tat affair is why investors are seeking shelter on the sidelines, pressuring the markets lower, pushing bonds and the dollar higher.
The only solace I can provide for stock bulls is that this selling pressure has not broken any key levels of price support. This suggests that, although the conditions are tenuous, the market is still geared toward higher prices.
I am focusing on Zafgen Inc (NASDAQ:ZFGN) because, despite the turbulent market conditions, I believe that Zafgen stock is poised to make a move toward higher prices.
These beliefs are based on a number of technical indications that are currently suggesting that ZFGN stock is likely to stage an advance.
The first indication that’s responsible for creating my bullish view is a completed technical price pattern, which is highlighted on the following chart.
Chart courtesy of StockCharts.com
The completed technical price pattern highlighted on this ZFGN stock chart is a descending channel. A descending channel contains price action that is characterized by a sequence of lower highs and lower lows. This sequence, by definition, shows a bearish trend.
Capturing this bearish pattern was achieved by connecting the peaks and troughs that were created by the respective levels of lower highs and lower lows.
This process created two downward-sloping trend lines that identify where levels of price resistance and price support reside. As long as Zafgen stock was contained within these trend lines, lower prices were likely to prevail.
On June 13, ZFGN stock broke above resistance, completing the descending channel. This negated the bearish implications while simultaneously suggesting that the stock is now free to appreciate.
In the days that followed, the stock price returned to test the descending channel from above. Testing a previous level of resistance from above is called a backtest, and it serves to reinforce the idea that the original break above resistance that completed the pattern was legitimate.
Backtests also act like springboards, so it’s not surprising that, once this backtest was completed on June 22, the stock price shot up afterwards.
I believe that this move toward higher prices is the beginning of a much larger move. This belief is based on the technical indications that are highlighted on the following Zafgen stock chart.
Chart courtesy of StockCharts.com
This ZFGN stock chart illustrates that Zafgen stock is currently being supported by a constructive wave structure and an influential momentum indicator.
The wave structure contains impulse waves and consolidation waves.
The waves highlighted in green in the above chart are impulse waves, and they capture the period in a bullish trend when a stock stages a sustained move toward higher prices.
The waves highlighted in purple are consolidation waves, and they capture the period in a bullish trend when the stock price corrects and refrains from advancing.
Consolidation waves and impulse waves work together in order to create and sustain a bullish trend.
The completed descending channel doubles as a consolidation wave. Its completion is suggesting that an advancing impulse wave is now in development, confirming that the next stage in this bullish trend is now in development.
This notion of higher ZFGN stock prices suggested by the impulse wave is being supported by the moving average convergence/divergence (MACD) indicator.
MACD is a very influential momentum indicator that uses the crossing of a signal line 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.
Momentum is very influential to a stock price; a stock cannot sustain a move in either direction unless the applicable momentum is supporting it.
That is why the impulse waves highlighted on the above Zafgen stock chart have accompanied a bullish MACD signal, while consolidation waves have been accompanied by a bearish MACD signal.
The completion of the consolidation wave has coincided with a bullish MACD signal, and these coinciding technical indications are reinforcing the notion that higher ZFGN stock prices, via an impulse wave, are now in development.
I am bullish on Zafgen stock because a number of technical indications are currently suggesting that ZFGN stock is poised for further gains.