Shares of the generic drug manufacturer Mylan (MYL) are breaking out of a large triangle consolidation pattern on their weekly chart and a smaller cup and handle formation on their daily chart. The patterns project a target price back near the stock's all-time highs.
In July last year, the stock gapped down 15% on news that Teva Pharmaceuticals (TEVA) had abandoned its plans to make a hostile bid for the company, and it continued to drop before finding support in the $38 area later in the year. Subsequent rally attempts failed, forming a series of lower highs, but support in the $38 area held, and this price action formed the triangle pattern.
Moving average convergence/divergence has made a bullish crossover, and the relative strength index is crossing above its center line. These indications reflect positive price momentum on this intermediate time frame. The vortex indicator, which is designed to identify shifts in trend, is making a bullish crossover, suggesting that the consolidation phase is ending and the stock is headed higher.
Volume remains light, and while the accumulation/distribution line is below its 21-period signal average, the money flow index, a volume-weighted relative strength measure, is attempting to retake its center line. The stock has moved above the downtrend line drawn off the pattern highs and is above its 40-week (200-day) moving average. The triangle breakout projects a target price measured by taking the height of the pattern and adding it to the breakout point, which if achieved would close the gap and take the stock price back up to the $75 area.
The formation of a cup and handle pattern has been underway for the last three months on the daily chart, with the first half of the pattern forming within the borders of the weekly triangle pattern. The rim line resistance of the pattern at the $47 level was being reinforced by the 200-day moving average, but a 4% rally in the stock price on Wednesday penetrated both levels of resistance. The relative strength index and moving average convergence/divergence are both tracking higher and above their center lines, and the aroon indicator, another early trend indicator, suggests that the stock is headed higher. Accumulation/distribution is above its center line on this timeframe, and Chaikin money flow is in positive territory.
This daily pattern projects a price target that measures back up to the 2015 all-time highs. Mylan is a long candidate at its current level using a trailing percentage stop.