This column was originally published on RealMoney on April 26 at 12:02 p.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.
We've heard a lot lately about
and its emerging leadership role in the biotech sector, but is it the real thing?
After all, this company has raised investor hopes repeatedly in the last few years, but is still underperforming the broad sector by a wide margin.
So, what's really in store for frustrated shareholders on this go around?
Let's examine the stock from several angles to divine whether it's a good investment, or at least a well-timed position trade.
I can't comment on its drug pipeline or the company's fundamental aspects.
You need a biotech mensch, like Adam Feuerstein, to lead you through that particular minefield.
All I can do is look at the charts and see how market players have reacted to this company's trials and tribulation in the last decade.
In this regard, let's take a giant step back and review the monthly chart to get a sense of history about Amgen's ups and downs over the years.
The stock had an excellent run in the late 1990s, when it lifted from 10 to 80.
The long uptrend topped out after the bubble burst in 2000, hitting a high in August and selling off with the broad market.
The subsequent decline was particularly violent, hurling price down to 30 by the middle of 2002, where it bottomed out.
Amgen recovered in 2003 with a sharp rally that brought the stock to within eight points of its all-time high. The vertical angle of attack that year outperformed the major indices by a wide margin. The uptrend then stalled and price went nowhere for the next two years, while other biotechs stair-stepped higher in a major recovery.
The next rally burst began in July 2005, when the entire biotech sector caught fire. Notably, that upturn failed three months later just above the 2000 high, with price starting a fresh decline that continued into March of this year. The bounce off this deep low ignited all the hoopla reported by the financial press in the last few weeks.
The stock is stuck in a deep, dark hole, despite the short-term rally. In fact, it's still trading below the 2003 recovery high, meaning it's gone absolutely nowhere in the last four years. This is especially frustrating considering the outstanding performance of biotech leaders
during this period.
The recent upturn has reawakened hopes that Amgen will start a run back to its glory days. But the weekly chart points out several reasons to be highly skeptical about this issue's prospects in the next one to two quarters. Let's start with the shape of the decline off the 2005 high.
Note the two selloffs, interrupted by a bear-flag rally that persisted through the second half of 2006. The second downdraft shows a more vertical decline than the first one, with price dropping like a rock for 10 weeks before bouncing. Then look at the remarkable symmetry between the two declines. Each selloff marked out about 23 points.
Unfortunately for the bulls, this pattern looks like a setup for a third and final selloff that will eventually violate three-year support in the low 50s.That decline might even reach an unfilled gap at 37 printed near the 2002 bottom. However, the broad size of this bearish formation makes the timing of the event difficult to estimate.
The daily chart adds considerable insight into Amgen's short-term prospects. The March recovery has retraced about 38% of the last selloff wave. It's also moved into a very interesting price pivot. See those two gaps between 62 and 66? These mark out continuation or runaway gaps that often print at midpoints in vertical rallies and selloffs.
In fact, many continuation gaps denote the identical midpoint for a single selloff wave and the entire downtrend. In other words, these holes could represent the halfway mark for the Amgen decline that began in September 2005. If so, they point to an incredible symmetry that could unfold later this year.
The distance from the 2005 high to the continuation gaps is about 33 points. Extending the decline an equal distance below those gaps yields an eventual price target near 31. Then look back at the monthly chart and see how the stock printed its 2002 bear market low at 30.57. This is truly amazing stuff, if it comes to pass.
But there's no rush here because the current bounce could last a few more months before the downside kicks in once again. I recommend that interested short sellers just watch price action at those gaps and be guided accordingly. If this bearish thesis is correct, the stock will have a tough time trading above 66.
At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.
Alan Farley is a professional trader and author of
The Master Swing Trader
. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback;
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