Mylan Stock is One Stumble Away From a Big Technical Pullback

Mylan stock - Mylan Stock is One Stumble Away From a Big Technical Pullback

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Mylan NV (NASDAQ:MYL) shares should be rising. Morgan Stanley upgraded Mylan stock just a few days ago, calling it the best pick among the domestic generic drugmakers. And, just this week Mylan announced it had launched an injectable generic version of gastrointestinal cancer therapy Mutamycin, made by Bristol-Myers Squibb Co (NYSE:BMY). It’s not an earth-shattering launch, but it does represent incremental sales growth.

Yet, not only is MYL stock not marching ahead with the broad market, it’s dancing dangerously close to a meltdown.

What will it take to push Mylan stock over the edge of the cliff? One or two more bad days is all it will take to complete the bearish pattern that’s been forming since November of last year.

The Reasons for Mylan Stock’s Upgrade

For the record, Morgan Stanley analyst David Risinger explained of his Mylan stock upgrade (to an ‘Overweight’):

“Beyond its strong pipeline of new products, Mylan has opportunities to gain share relative to generic competitors which are facing challenges.”

Risinger explicitly touted Mylan’s relationship with Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA). This sets the stage for bigger-than-expected gains later in the year on the heels of potential approvals of generic versions of asthma treatment Advair and post-chemo drug Neulasta.

The upgrade of, and comments about, Mylan stock were also a tacit dig against rival Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA), which is in defense-mode right now, cutting some of its workforce.

And Risinger isn’t exactly alone. Most MYL stock analysts are leaning bullishly here. Though shares only rate, on average, a little less than a “Buy,”, the average price target on Mylan shares right now is just a tad less than $50. That almost 20% better than its current price.

So why isn’t the stock moving in that direction? It’s simple.

MYL is one of those story stocks that’s taken on a life of its own. And, that life — shaped by actual traders rather than theorists — isn’t as enthusiastic as analysts collectively are.

Mylan Stock Under the Microscope

The chart below tells the tale. MYL shares were able to muster a nice December/January runup, but it’s been a clear struggle since then. As of the most recent look, shares are back underneath all but one of the key moving average lines, and they’re still on the defensive.

Click to Enlarge
Source: ThinkorSwim

That chart, however, is even more troubling than it may seem with just a quick glance.

Go back and take another, closer look. Specifically, notice the slight bullish bulge from November, the big rally in December and January, and then another bullish bulge in February and March. That three-peak pattern, with the biggest of the three in the middle, as a pretty good head-and-shoulders pattern that (if the red, dashed neckline fails as support) signals of a sizable breakdown.

The hard part, of course, is waiting for the neckline to break as a support level.

Even without the red flag of the head-and-shoulders pattern though, there’s reason for concern.

See the Chaikin oscillator at the bottom of the image. With it being below the zero mark and still edging lower, this is a sign that the volume tide has been bearish for a while, and is increasingly bearish.

In simpler terms, Mylan stock is fighting an uphill battle.

Bottom Line for Mylan Stock

MYL is not currently the way things “should be.” You can go broke trading based on the way things should be though. In this world, you have to respect the way things are, even if they don’t always make sense from a fundamental perspective.

It’s also crucial not to read more into the budding reality than need be. And a decent selloff is a buying opportunity, as the legitimate expectation of a per-share profit of $5.39 this year means Mylan stock is priced at a mere forward-looking P/E of 7.5. That’s cheap by almost any standard.

The trick is figuring out exactly where any pullback may stop and reverse. So, if it helps, a retreat back the $36 area would be a reasonable expectation. That area was support back in November, and that’s about how far the head-and-shoulders pattern (based on the distance between the top of the “head” and the neckline) suggests the stock is apt to fall.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.

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