The price development of Therapeutic Kidnapping (RAPT) has been bearish lately and the stock is down 13% over the past week. However, the formation of a hammer chart in its last trading session indicates that the stock may soon experience a trend reversal as the bulls may have gained significant control over the price to help it find support. .
The formation of a hammer pattern is seen as a technical indication that a bottom is approaching with a likely drop in selling pressure. But that’s not the only factor that makes a bullish case for the stock. Fundamentally, strong agreement among Wall Street analysts to raise the company’s earnings estimates bolsters its outlook for a trend reversal.
What is a Hammer Chart and how do I trade it?
It is one of the most popular price patterns in candlestick charts. A minor difference between the open and close prices forms a small candle body, and a larger difference between the daily low and the open or close forms a long lower wick (or vertical line). Since the length of the lower wick is at least twice the length of the real body, the candle resembles a “hammer”.
Simply put, during a downtrend, with absolute control of the bears, a security typically opens lower than the previous day’s close, and closes lower again. On the day the hammer pattern forms, maintaining the downtrend, the stock hits a new low. However, after finally finding support at the day’s low, some buying interest is emerging, pushing the stock higher to close the session near or slightly above its open price.
When occurring at the bottom of a downtrend, this pattern signals that the bears may have lost control of the price. And, the success of the bulls in preventing the price from falling further indicates a potential trend reversal.
Hammer candles can occur at any time – such as a minute, daily, weekly – and are used by both short-term and long-term investors.
Like any technical indicator, the hammer chart pattern has its limitations. In particular, since the strength of a hammer depends on its location on the chart, it should always be used in conjunction with other bullish indicators.
Here’s what increases the odds of a turnaround for RAPT
An upward trend in earnings estimate revisions that RAPT has been witnessing lately can certainly be seen as a bullish indicator on the fundamental side. Indeed, empirical research shows that trends in earnings estimate revisions are strongly correlated with short-term stock price movements.
The current-year EPS consensus estimate rose 6.2% over the past 30 days. That means Wall Street analysts covering RAPT overwhelmingly agree on the company’s potential to report better earnings than they previously predicted.
If that’s not enough, you should note that RAPT currently has a Zacks #2 (buy) rating, meaning it’s in the top 20% of over 4,000 stocks we rank based on market trends. revisions to earnings estimates and EPS surprises. . And stocks with a Zacks rank of No. 1 or 2 generally outperform the market. You can see the full list of today’s Zacks Rank #1 (Strong Buy) stocks here >>>>
Additionally, Zacks Rank has proven to be an excellent timing indicator, helping investors identify precisely when a company’s prospects are beginning to improve. So, for Rapt Therapeutics shares, a Zacks rating of 2 is a more conclusive fundamental indication of a potential turnaround.
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