The incredible returns and violent volatility that created much media buzz surrounding marijuana in 2016 has subsided thus far in 2017. This doesn’t mean that those days are behind us, as I believe that the following marijuana stock, Cara Therapeutics Inc (NASDAQ:CARA) stock, is set up for quite the run to kick off 2017.
The basis for my beliefs is technical analysis, and this is my preferred format for analyzing potential investments. Technical analysis uses past price and volume data found on a stock chart to discern trends and forecast future prices.
There are a number of bullish developments on the Cara Therapeutics stock chart that suggest this marijuana stock is set for an advance. The most compelling factor is that some of these initial developments occurred almost simultaneously.
The following Cara Therapeutics stock chart illustrates the bullish developments and the price action that followed.
There are three distinct signals on this CARA stock chart that suggest this marijuana stock is set to appreciate in 2017.
The first bull signal was generated in April 2016, when the moving average convergence/divergence (MACD) indicator crossed in a bullish manner. MACD is a simple and effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish momentum. The bullish cross that was generated indicated that the bearish momentum that drove CARA stock lower had subsided and that bullish momentum was on the rise.
The second signal was generated when Cara Therapeutics Stock broke above a level of resistance that is now labeled as support. This level thwarted every attempt to trade above it for most of 2016. It was not until November, and CARA stock’s third attempt at this level, that resistance was finally broken. With this level of resistance broken, CARA stock can now appreciate unobstructed.
The third signal was generated when CARA stock broke above the downtrend line that contained price since August 2015. The trend line is created by connecting the peaks on the price chart, and it defined the bear market that erased 81.9% of CARA Therapeutics stock’s value from peak to trough. Breaking above this downtrend line indicated that the bear market had concluded and the door for a new bull market to develop had swung wide open.
The second and third signal occurred almost simultaneously, adding fuel to the bullish outlook, but there was slight problem. There was a lack of follow-through when this marijuana stock broke above both technical levels of resistance. There was an initial surge to $12.74 before prices pulled back.
This pullback was constructive and served to backtest the previous levels of resistance. This backtest represents bullish price action because it serves to reaffirm that the previous levels of price resistance are now the new levels of price support. With this backtest complete, this should set the stage for this marijuana stock to appreciate once again.
This view is not ill-founded, because CARA Therapeutics stock has now risen above $12.74, indicating that this marijuana stock is now following through on its initial surge in price. This sets the wheels in motion for CARA stock to trade higher. I would be targeting the previous peak that was created in August 2015, at $23.61, as the next level of resistance that this marijuana stock is set to test. From current levels, this target price represents a 78% return.
Cara Therapeutics stock is set to kick off 2017 on the right foot, because the CARA stock chart suggests that this stock is now set to challenge the previous peak at $23.61. This price action could put marijuana stocks back into the spotlight once again.