Shares of the pharmaceuticals company, which makes Botox and other specialty drugs, have managed to hold above their 200-day moving average during this current period of extreme volatility. The low yesterday bounced off the average, forming a bullish hammer candle.
This positive price momentum comes at a time when the stock, like most of the market, is in an extremely oversold condition. The Commodity Channel Index at the top of the chart is an overbought/oversold indicator that, unlike oscillators such as the Relative Strength Index and the Stochastic indicator, is unbound, meaning it is not confined to a specific range. This week, the indicator reached an extreme level that, in the past, has preceded strong moves in the stock.
The previous rally came after a successful test of the 200-day moving average in October 2014, when the Commodity Channel Index was also deeply oversold, and saw the stock price advance 60% to its March 2015 high. This doesn't mean that Allergan is going to see a move of that magnitude again, nor does it mean that it might not be susceptible to more market turmoil. It just indicates that a positive combination of technicals and price action is repeating on the chart and presents a good trading opportunity.