The commercial-stage biotechnology company and a leader in hematology/oncology, Spectrum Pharmaceuticals, Inc. (NASDAQ: SPPI) seem to be getting ready for a price surge according to its latest charts.
[hana-code-insert name=’adsense-article’ /]Bullish Indications
#1 Ascending triangle pattern support: The daily chart of SPPI shows that the stock has currently taken support at the bottom of the Ascending Triangle pattern.
An Ascending Triangle pattern is a bullish pattern and is marked in the chart in pink color.
The stock has previously taken support near the bottom of ascending triangle pattern before moving higher again.
#2 Long-Term Support Level: There is a long-term support level for the stock near $20, marked as a green dotted line. This is a resistance-turned-support level as the stock had attempted to cross the level multiple times before finally succeeding.
#3 Uptrend unbroken: The weekly chart shows that the stock’s uptrend is still unbroken as the price has been making higher highs and higher lows.
#4 High Volume Bullish Candle: The weekly chart shows that a high volume long bullish candle was formed on 16th October 2017. This indicates strong buying. After that, there was a correction. The price took support at half the length of the bullish candle, indicating a demand area near $16.
Note: However, there are also some bearish signs in the daily and weekly charts.
- MACD below Signal Line: The MACD (light blue color) is currently below the MACD signal line (orange color) in the daily chart. This shows possible weakness.
- Double Top Pattern: The stock has formed a double top pattern (marked in purple color) in the daily chart. A double top pattern is a bearish pattern, indicating a possible correction.
- RSI-Price negative divergence: The weekly chart of SPPI shows that there is a negative divergence between the price and RSI. The Price made a higher high while the RSI made a lower high. This is marked on the chart as blue dotted lines. This implies that the price may decline.
So, it is possible that the stock may correct to $16 before moving back again.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, there are two scenarios in which the stock can be bought.
- #1 When the stock breaks out of the ascending triangle pattern. This translates to a buy price of $23.
- #2 When the stock corrects to the long-term support level near $16.
These levels are marked in the daily chart in green rectangles.
TP: Our target prices are based on the ascending triangle pattern breakout. The TP is $23 (when entering at $16) and $30 (when entering at $23)
SL: To limit risk, place a stop loss at $15.50 (when entering near $16) and $18.80 (when entering after the breakout at $23). Note that this stop loss is on a closing basis.
The target potential upside for this trade is nearly 30% to 44% in the next 3-4 months.
- Entry at $23: For a risk of $4.20, the target reward is $7. This is a nearly 1:2 risk-reward trade, which means that this trade offers nearly 2x more potential upside than downside.
- Entry at $16: For a risk of $0.50, the target reward is $7. This is a nearly 1:14 risk-reward trade, which means that this trade offers nearly 14x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the long-term uptrend and ascending triangle pattern. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
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