Bullish Falling Wedge Breakout Signals Trend Reversal
COMPASS Pathways Plc ADR (CMPS) shares have been showing signs of a bullish trend reversal. A bull breakout of a long-term bullish falling wedge triggered in August, with signs of strength continuing to develop. An uptrend remains in its likely early stages and shows signs of continuing. Earnings for Q4 are expected on February 26.
Breakout Confirmation Through Key Moving Averages
CMPS stock broke out of long-term bullish falling wedge in August, concurrent with reclaiming the 50-week moving average at $4.40. On the breakout day, the 20-week average was confirmed as support after being reclaimed days before thereby confirming strength. The subsequent advance further confirmed the breakout, with a double bottom reversal pattern triggered above $5.15. That was followed by the initial reclaim of the 100-week average in October. The high of $8.20 in early-January satisfied an initial target for the double bottom.
Pullback Finds Support at Multi-Indicator Confluence
The subsequent pullback reached a ten-week low of $5.67 last week, before showing signs of support. That price level is at the confluence of several indicators, giving it potentially greater significance. Three indicators point to the support zone, with the more significant being the 100-week moving average, now at $5.60. There is also a 78.6% retracement level at $5.61 and a rising trendline. A second breakout of the 100-week average occurred in early-December.
Higher Swing Low Setup Signals Improving Demand
The current pullback is the first since the $8.20 high and it marks an ideal price zone to establish a higher swing low for the developing advance. A sustained reclaim of the 100-week average would show improving underlying demand in the stock of CMPS. It would further confirm that buyers are in control and that the bull trend is progressing. Moreover, sometimes before a pickup in bullish momentum, a stock will pullback to a key moving average and test it as support before momentum picks up. As noted above, a similar dynamic was seen on a daily test of support at the 20-week average, on the wedge breakout day.
Upside Targets Defined as Bull Trend Develops
Initial upside targets are marked by lower swing highs that define the top boundary of the wedge. They are at $12.75 and $21.50. However, the next long-term upside target looks to be a 61.8% Fibonacci retracement of an internal downtrend at $14.15. The bullish outlook becomes suspect on a drop below the prior higher swing low at $4.90.
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Note: The author holds a long position in COMPASS Pathways Plc (CMPS) at the time of writing.
