While cheerleaders in the media are pointing to the EpiPen price hike as the reason the price of Mylan (MYL) has fallen 10% this week, let's leave the hype-media to the presidential candidates. What is really controlling the price of Mylan is the crowd's sentiment toward the company's share price. Regardless of the story du jour, let's look at the objective evidence for the price behavior, which our decision support engine (DSE) analyses to anticipate coming price movement.
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Here's the monthly bar chart, showing the most recent eight years of incredible performance, followed by the past year of corrective action. The rise actually began way back in the 1980s when these shares came public, and have gone virtually straight up since. The stochastics suggest another rising trend is going to begin soon, which the DSE anticipates with the blue arrow, pointing toward the pink sell box surrounding $60 +/-$5. That hints that this EpiPen hype will not result in the company lowering pricing of EpiPens in the near future. If it did lower pricing, its earnings would fall, and the crowd might see that as reason to exit this name en masse. With the stochastics nearing the most oversold levels since 2007, DSE warns not to be using selling actions here in the $40s. Rather, await the next multimonth uptrend to exit Mylan into the $58 +/-$3 zone.
Using its chart pattern recognition algorithms to compare thousands of similar patterns, our DSE has probability-ranked a rise of 15 points higher than a decline of 15 points. However, regardless of which 15-point move arrives first, it should be "faded." In other words, around $58 +/-$3, selling actions should be used to sell all shares of Mylan, and enter short exposure, while around $30 +/-$3, buying actions should be used to exit short exposure, and begin building long positions assertively.
Shorter term, as in this week, the $42 +/-$1 area is likely to produce at least a bounce toward $47 +/-$1, with the potential to be only the beginning of the overlapping rise toward the pink sell box. The DSE is warning that today, down here, amid the noise of the news, if you are long, you should not panic if you were astute enough to have bought at the two dips into the $30's that were available in the past year. Rather, add more exposure, or establish some if you missed those opportunities, and save a little capital to bolster your long exposure if the lower 30s is briefly probed. The probing below $40 was a brief window of opportunity the last two times, as will be any quick breach of those lows be in the next few months.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.