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The Case for a Bounce in Bristol-Myers Squibb

Tim Collins outlines the rationale for a rebound in shares of hard-hit drug maker.
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Down, down, down. 

Bristol-Myers Squibb  (BMY) - Get Bristol-Myers Squibb Company Report has had a rough couple of months, as their stock has swung from a high of nearly $70 per share down to below $60. In an era where a few pharmaceutical companies are busy saving the world (just about literally), it’s rough to be one of the drug makers sitting on the sidelines.

Among the challenges, potential congressional action on medicare pricing for drugs and a federal appeals court ruling throwing out a $1.2 billion ruling in Bristol-Myers' favor in a patent fight with Gilead Sciences.  (GILD) - Get Gilead Sciences, Inc. (GILD) Report

Tim Collins sees things turning around for Bristol-Myers, or, to be clear, how things might turn around. “Even a recent upgrade hasn't helped Bristol-Myers Squibb (BMY) stock. It has been a straight decline without anything resembling a bounce for a month now,” Collins wrote recently on Real Money.

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“This is a little unusual for a big name like BMY. Unfortunately, having $1.2 billion reversed from your favor to nothing will do that to a stock. The case may not be dead, but the company has watched $15 billion in market cap valuation disappear. Looking at the chart, I wonder if maybe the drop is ready for a pause or even a bounce.”

Now, Collins is clear, this is a market analysis. He doesn’t necessarily see anything about BMY’s business decisions which have changed his perspective on their stock. But sometimes technical analysis is all you need. (In fact, sometimes it’s all you have.) In this case, Collins sees a big and very well-funded company struggling to keep its stock price up. Now the market may be ready to change its mind about this asset.

“The slope of the move can be telling. The sharper the angle, the quicker we reach points of exhaustion. That's why the chart shows a Full Stochastics indicator is in the single-digits and the Moving Average Convergence Divergence (MACD) is 10x below its previous in three months. Ironically, the parabolic stop-and-reverse (PSAR) flipped Thursday. That's actually been good for a decent bounce over the past four months."

Bristol-Myers Squibb might be ready to bounce back after its long dive. Just don’t expect a miracle.