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Is It Time to Sell Abbott Labs?

Technical strength is abandoning ABT


You ever notice how the guys and gals who recommend the purchase of a stock never seem to be around when it comes time to make a sell decision? Not that I’ve never done it myself, but it bugs me enough that I try to wrap up a suggested trade as clearly as I opened one up.

That’s what I’m doing with Abbott Laboratories (NYSE:ABT) today.

If it rings a bell (and given how long it’s been since the pick, it probably doesn’t), it might be because I was bullish on Abbott way back in late October after the stock finally broke out of a long-term wedge pattern. It’s not the kind of thing most investors would have noticed, or even cared about noticing. But, the longer I do this, the more I’m convinced the technical clues tell you as much about where a stock’s going as the underlying fundamentals do.

It works both ways, of course, which is why I’m now saying it’s time to pull the plug on Abbott … if you were only in it because of my advice. That said, perhaps you should consider taking a little profit now no matter what the reason you got in.

All Good Things …

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The nearby chart tells the tale. Shares soared in the meantime, from $53.45 then to the current price of $64.64. And they had been as high as $66.80 at one point last week. That’s a gain of at least 21%.

Unfortunately, it’s a gain that has left the stock technically overbought and ripe for a pullback.

Just for the record, though, the overbought “feeling” isn’t the only reason I suspect the rally from ABT is winding down.

While the stock surge is exciting, Abbott hasn’t exactly been knocking it out of the park on the earnings front. Oh, per-share profits have technically grown since then, but that growth has been sporadic, and not altogether reliable. Pair that up with the fact that the trailing P/E of 21 is about as expensive as we’ve seen the stock in a normal (i.e. profitable) environment since 2006, and what you’ve got is a stock that’s going to have a tough time justifying higher prices to new buyers.

That’s still not the only reason it might be time to let go of Abbott Laboratories now, however.

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While the multimonth chart still shows a pretty clear breakout from a triangle pattern, when you zoom further out to a multiyear chart, another pattern emerges.

Last week, ABT bumped into a resistance line (orange) that extends all the way back to 1999. Had the stock not struggled — and ultimately pulled back — from that line so many times before, it might be easier to overlook it now. However, it has been the beginning of a major selloff three times in a little more than a decade, and I think it would be nuts to expect anything different this time around … especially given the underlying fundamental situation.

The Last Word

Just to be clear, this isn’t an assessment of the company’s merits. Abbott is a fine company, and I can’t imagine the company hitting any major stumbling blocks in the foreseeable future. This is about the stock itself, which — unfortunately — can become disconnected from the company’s underlying results from time to time.

As I sometimes tell friends, corporate results might determine what a stock “should be” worth, but I can’t deposit “should be” at my bank and pay the bills with it. I only make money by buying low and selling high, the latter of which can sometimes be a tough mental hurdle to clear. If it’s tough for you, too, then consider this your third-party approval to head for the exit on Abbott … at least for a while.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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