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At the beginning of 2015, no sector was hotter than the biotech sector. The NYSE Arca Biotechnology Index gained over 25% in the first six and a half months of 2015.
Then the bottom fell out as pharmaceutical companies and biotech companies alike came under fire for their pricing practices. Just recently we saw the smug Martin Shkreli, former CEO of Turing Pharmaceuticals, pleading the fifth in a testimony in front of Congress. Shkreli is the main person responsible for bringing the negative attention to the industry as a whole last year with his pricing methods at Turing. Since peaking last July, the biotech index has lost 40% of its value and there have been very few biotech and pharma companies that have escaped the selling.
One company that is down, but not nearly as much as the industry as a whole, is Amgen (NASDAQ: AMGN). During the time period that the biotech index lost 40%, Amgen stock is only down 10.4%. While no investor is ever happy with a loss, Amgen shareholders have to be thankful that Amgen stock has held up as well as it has. Despite holding up better than the industry as a whole, the decline in the price has brought Amgen to critical support.
Looking at the daily chart first, we don’t really see anything that stands out as support, but we do see that the stock is oversold based on the daily stochastic readings and that the readings just made a bullish crossover.
Where we see the support levels that are being challenged is on the weekly chart and there are two different forms of support that need to hold. First is the trend line connecting the lows from the past four and half years. Amgen stock is sitting right on that trend line right now.
The second form of support is the 104-week moving average. I know I use different moving averages than most people, but the 104-week moving average represents two years of stock prices. Falling below that is never a good sign. The moving average and the trend line are practically sitting on top of one another and that is what makes it so important that they hold up.
We also see on the weekly chart that the weekly stochastic readings are hitting oversold levels and when this has happened in the past five years that has been a good sign for the stock. However, in 2007 when the weekly stochastic readings hit oversold levels, it didn’t help the stock at all, so you have to be careful.
So what do you do with Amgen stock? Do you buy it? Do you sell it short or sell it if you own it? Right now, I think it looks like a buying opportunity with the chance that the stock could gain a good 20% over the course of the next six to nine months.
However, I would not buy Amgen stock without having an exit plan, either. If the stock closes the week below the 104-week moving average and the trend line, I would be worried, but I would not set my stop-loss there. I would set the stop-loss at the $128 level. That way you can give the stock some room, but if it drops below the September low, Amgen stock will likely continue down.
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