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How This Psychedelic Company Could Lead A Turnaround For The Sector

April 10, 2021 10:34 am
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How This Psychedelic Company Could Lead A Turnaround For The Sector

Compass Pathways PLC (NASDAQ:CMPS) is often viewed as the leader in the psychedelic sector with smaller companies such as Mind Medicine (OTC:MMEDF) and Mydecine Innovations Group Inc (OTC:MYCOF) often following its moves.

After reaching an all-time high of $61.69 on Dec. 14, Compass Pathways consolidated for seven weeks before making another big push to the upside on Feb. 22. After failing to reach a new high on the push, it’s been in a sharp decline, plummeting 37% over the past six weeks.

The sector may be in for a turnaround, however, as Compass Pathway’s stock is starting to flash bullish signals.

The Compass Pathways Chart: On March 30 Compass Pathways broke up through the sloping downward trendline that had been pinning it down since Feb. 22. The stock now looks to be completing a bull flag between two key areas — above a support level at $35.24 and below an overhead resistance level of $40.83. If the stock can break above the top trendline of the bull flag, it has room to move to $40.83 before a possible area of consolidation.

On Friday, Compass Pathways looked to be completing its 10th daily candle in a bull flag pattern, with the first six candles in the pattern creating the pole and the last four candles creating the flag.

Because there is a retracement in a bull flag pattern, traders and investors may be looking to buy the dip at the bottom of the flag before Compass Pathway’s stock reacts to the pattern and makes a bullish move upwards.

Compass Pathways is trading above the eight-day exponential moving average (EMA) but below the 21-day EMA. The eight-day EMA is starting to curl upwards which could push the share price up. If Compass Pathways breaks up above the bull flag channel, the eight-day EMA will cross back above the 21-day EMA which would be bullish.

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Bulls want to see the stock break up out of the bull flag, with strong bull volume within the next few trading sessions, and then for Compass Pathways to work its way up through the two overhead resistance levels. Bears want to see the stock continue to trade down in the channel and eventually break support at $35.24.

What Is A Bull Flag: A bull flag consists of an upwards poll, where the stock price has moved up quickly with a flag formation at the top of the pole.

The flag formation is a descending channel where the stock price retraces slowly and not by more than 50% the length of the pole. The flag formation is considered to be consolidation before the next leg up.

CMPS Price Action: Shares of Compass Pathways ended Friday's trading at $35.80, down 3.66%.

Image by Firmbee from Pixabay.