A price correction is often defined as a sudden loss in value, with the chart turning suddenly lower after an uptrend phase. But a correction can also occur in terms of time as opposed to price. The chart of Incyte Corp. (INCY) has demonstrated such a “time correction” in recent weeks. Today we’ll break down the specifics of this consolidation phase, use technical indicators to validate the pattern, and focus on what would constitute a successful resolution. After bottoming out along with most U.S. stocks in April, INCY pushed back above its 200-day moving average before stalling out around $71 in early June. For almost two months after that moment, the stock traded within a sideways range between the 200-day moving average and the new resistance level. At the end of June, Incyte finally eclipsed the previous swing high, accelerating to the upside supported by strong momentum readings. The consolidation phase now complete, INCY entered a new accumulation phase of higher highs and higher lows. After reaching a new ceiling around $88 in early August, Incyte once again entered a consolidation phase. Similar to what we noted back in July, this sideways price action allowed the 50-day moving average to “catch up” to the price action. Once the sideways trend met the 50-day moving average, INCY turned higher as the consolidation was completed. Applying the Ichimoku cloud indicator to Incyte, we can see that the time correction in June and July ended just as the price was reaching cloud support. More recently, the September and October consolidation appears to have ended in a similar fashion. After briefly touching the cloud earlier this month, INCY appears to have resolved this pattern to the upside. What technical approaches could help us confirm a new uptrend phase for Incyte? For me, it always comes down to three key factors: price, momentum, and volume. If Incyte is able to power above resistance at $88, I’d like to see the RSI push above the crucial 60 level. Only then could we claim that there is strong enough momentum to justify a new accumulation phase for INCY. In terms of volume, the Chaikin Money Flow has been right around the zero level for the last six weeks. Similarly, the accumulation-distribution line is trending sideways as buyers and sellers are essentially in equilibrium. A move higher in price ideally would be supported by an uptick in both of these indicators, which would confirm broader accumulation for this biopharma innovator. – David Keller, CMT marketmisbehavior.com DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
