I am not embarrassed to admit that John Paulson is one of the smarter guys in the room. He has made a lot of money for his investors and himself.
But has he made money on all of his ideas? No. Nobody can claim that. And that gives me an opening to maybe add some value.
According to a recent filing, Paulson's top health care positions are Allergan (AGN) - Get Report , Shire (SHPG) - Get Report , Teva Pharmaceutical Industries (TEVA) - Get Report , Mylan (MYL) - Get Report and Mallinckrodt (MNK) - Get Report . I have no idea of where and when he made these purchases, but let's look at the current technical position of each of these names.
In this daily chart of Allergan (AGN) - Get Report , we can see that prices have been in a downtrend the past 12 months. The on-balance-volume,or OBV, line has also been weak and declining, signaling that sellers of Allergan have been more aggressive than buyers, with volume heavier on days when the stock has closed lower. There is a small bullish divergence in April and May as prices made lower lows, but the momentum indicator made higher lows.
Prices have come off their lows, but it isn't spirited buying. Prices are still below the declining 50-day moving average line and the 200-day average. We would also like to point out the downside gap in early April, which knocked prices below the 2015 lows.
The 30,000 foot view of Allergan in the weekly chart shows what I think is a rounded top formation. Prices have turned down below the 40-week moving average line, and the slope of the line is negative. The OBV line on this weekly timeframe is pointed down too. The moving average convergence/divergence oscillator may or may not narrow for a cover-shorts buy signal below the zero line. Last, there is considerable resistance above the market from $270 and up.
Would I like to be long Allergan? I like to purchase long bases -- the longer the base the better. Allergan hasn't made much of a base yet, and the low made earlier this month hasn't been tested. I am going to wait on this name.
"Sales across Allergan's top dozen products are disproportionately driven by volume growth (70%) rather than price (30%)," Cramer said. "While we do recognize that volatility may hit shares by the end of June (or until there is concrete approval of the deal), we reiterate that once the overhang has passed, we expect the streamlined branded business, powerful buyback program and acquisition optionality to push shares higher."
In this daily chart of Shire (SHPG) - Get Report , we can see a big decline in 2015 but a recovery so far into 2016. Prices have rallied and are now above the rising 50-day moving average line but just now testing the underside of the declining 200-day average. The OBV line has moved up very strongly, confirming the price strength.
In April and May there is a bearish divergence between prices making higher highs and the momentum indicator making a lower high. The lower high on the momentum indicator tells us that the rate of price acceleration has slowed and this might mean we will see a decline back to the $165-to-$150 area. This pullback, should it occur, will just make the potential base bigger.
We have mixed signals on this weekly chart of Shire. Prices are still below the declining 40-week moving average, but the OBV line is positive, and the MACD oscillator is improving from a cover-shorts buy signal. Turning our attention back to the chart, we notice only two legs to the downside. The net result of these signals is that we will probably see more sideways price action for Shire and a more attractive base pattern when we get done.
Shire can go on our "shopping list," and we will look at this stock again.
In this daily chart of Teva Pharmaceuticals (TEVA) - Get Report , we can see that prices are still in a downtrend. Prices are below the downward sloping 50-day moving average line and the 200-day line. The OBV line is pointed down. There is a bullish divergence in March and May, with prices making lower lows and the momentum study making equal lows. This bullish divergence might be the start of a rally, but it can be ignored by the marketplace.
Here in this weekly chart of TEVA, we can see that prices are below the declining 40-week moving average line. The OBV line peaked in early 2015. The MACD oscillator is bearish too. TEVA has its work cut out for itself. It could base and do better, but we cannot rule out another leg lower to next support around $40.
In this daily chart of Mylan (MYL) - Get Report we can see that prices made a low in October and a retest in May. Prices are below their declining 50-day and 200-day averages and the OBV line is flat to soft suggesting that buying has not been aggressive. Last, the momentum study is not showing any promising divergences.
Prices are below the declining 40-week moving average, and the OBV line is pointed down. There is a bullish divergence by the equal price lows we have seen and higher momentum readings over the same time period. Higher momentum readings as a stock retests a prior low mean that buyers were using the second decline to buy and they slowed the decline.
The jury is still out on Mylan, but a close above $50 should convince more bears to become bulls.
This daily chart of Mallinckrodt (MNK) - Get Report shows part of the big decline that the stock suffered in 2015. Prices have been moving sideways since October. Prices have crossed above and back below the 50-day moving average line, which has trended sideways. Mallinckrodt is still below the declining 200-day average. The OBV line is neutral. It is not clear to me that the dips into the $60-to-$50 area have been bought. If there is buying into the weakness, the OBV line is not picking it up. Price will make the decision for me -- a close above $80 and the price action turns bullish.
In this longer-term view of Mallinckrodt, we can see that prices are below the declining 40-week moving average. The OBV line on a weekly timeframe has been pointed down from mid-2015, telling us there has been some pretty aggressive selling. On the plus side, the momentum study shows that downside price acceleration has slowed to near zero. This low momentum reading may mean that volatility has dried up or that interest has dried up -- too soon to tell for sure.