AbbVie Invests in a Cancer Drug – How to Trade the Stock

Buy AbbVie on weakness to its 200-week simple moving average and reduce holdings on strength to its semiannual risky level.
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AbbVie  (ABBV) - Get Report is investing in a potential tumor-fighting drug in a deal with Beijing-based Jacobio Pharmaceuticals. 

North Chicago-based AbbVie will fund the research and development for this drug. The details of this deal are described in this report published on TheStreet.com.

The stock has had an extremely volatile 52 weeks as shown on its daily chart.

Shares of AbbVie opened on Tuesday below their monthly risky level at $94.56.

The stock opened Tuesday at $90.97, up 2.7% year to date and in bull-market territory 45% above its 52-week low of $62.55, set March 23. 

AbbVie stock set its 52-week high of $97.86 on Feb. 12 and it's now 7% below this level.

When trading speculative biotech companies, investors should remember that when a stock meets a milestone, it pops higher. If the milestone disappoints, the stock falls back to its pre-milestone range.

For AbbVie, the staging ground is its quarterly value level at $71.88. 

The upside potential in June should be limited to its monthly risky level at $94.56, which is below the 52-week high.

The Daily Chart for AbbVie

Daily Chart for AbbVie

Daily Chart for AbbVie

Courtesy of Refinitiv XENITH

The daily chart for AbbVie clearly shows the extreme up and down volatility over the past 52 weeks.

The stock traded as low as $62.66 on Aug. 15, 2019, then rallied 56% to its Feb. 12 high of $97.86. The shares then plunged 36% to a March 23 low of $62.55.

The rebound from this low to the recent high of $93.66 set on May 18 was nearly 50%.

The stock is above its 200-day simple moving average at $81.88. This is about the center of the trading range between its quarterly value level at $71.88 and its monthly risky level at $94.56.

The Weekly Chart for AbbVie

Weekly Chart for AbbVie

Weekly Chart for AbbVie

Courtesy of Refinitiv XENITH

The weekly chart for AbbVie is positive but overbought, with the stock above its five-week modified moving average of $87.63.

The stock is also above its 200-week simple moving average, or reversion to the mean, at $81.70.

Note that patient investors could have made a lot of money by buying AbbVie on weakness to its reversion to the mean.

Note also that the stock is significantly below its all-time intraday high of $125.86, set during the week of Jan. 26, 2018.

The 12x3x3 weekly slow stochastic reading is projected to rise to 81.95 this week from 76.03 on May 29.

Trading Strategy: Buy AbbVie on weakness to its 200-week simple moving average at $81.70 and reduce holdings on strength to its semiannual risky level at $102.62.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019, were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each uses the past nine closes in these time horizons.

Second-quarter 2020 levels were set established based upon the March 31 closes. The monthly level for May was based upon the close on April 30.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.