Preparing Now for an Amgen Breakout

by Tyler Craig | August 22, 2012 1:09 pm

With yesterday’s nasty intraday bearish reversal[1], it appears the market’s bull run has finally encountered some formidable resistance. With the major trend still higher, any type of short-term weakness will likely be viewed as a buying opportunity by the majority of participants.

And, hey, buying dips has proved lucrative ever since the early June low, so until we see sufficient evidence to the contrary, traders should give the uptrend the benefit of the doubt.

Craig AMGN chart 300x144 Preparing Now for an Amgen Breakout
Click to Enlarge
Though some stocks are overbought and in need of a breather[2] in the coming days, biotechnology company Amgen (NASDAQ:AMGN[3]) has spent much of August consolidating, and it looks as if it may be ready for a renewed advance. Since its high-volume breakout in late July, AMGN has formed a textbook ascending triangle against resistance at $84.

Traders looking for a conservative play to exploit the coming breakout might consider buying an October 80-85 bull call spread. To initiate the position, you would buy the Oct 80 call while selling the Oct 85 call for a net debit of $3.05.

The risk is limited to the initial $305 ($3.05 x 100) and will be incurred if the stock falls beneath $80 by October expiration. The reward is limited to $195 and will be captured if AMGN sits above $85 at October expiration.

At the time of this writing Tyler Craig had no position on AMGN.

Endnotes:
  1. nasty intraday bearish reversal: http://investorplace.com/2012/08/dow-smacked-with-the-kiss-of-death/
  2. overbought and in need of a breather: http://investorplace.com/2012/08/sprints-stock-needs-a-breather/
  3. AMGN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMGN

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