Large-cap biotechnology stocks as a group are higher by roughly 10% for the year thus far, and this despite a bumpy ride that tested plenty of nerves for market participants. Within this group, shares of Amgen (NASDAQ:AMGN) have seen a steady incline since May and one that has good odds of continuing.
As I often discuss in this here column and with my clients on a daily basis, money always tries to find the best reward-to-risk pockets of the markets given the circumstances. Within the stock market, this behavior is known as sector or group rotation — where investors will move money from one group of stocks to another. The broader healthcare sector of stocks has acted well since the spring, i.e. it saw money rotate into it, which in turn also helped biotechnology stocks as an industry group within the healthcare sector.
In other words, when the wind is at your back it’s easier to move forward … and it’s the same thing in the stock market. If institutional investors are piling money into a sector then most stocks within this sector or group will also benefit from price appreciation.
AMGN Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Looking at the multiyear weekly chart of AMGN stock, we see that after a good run from 2012, it began to top out in late 2014. While the stock showed plenty of gyrations over the ensuing couple of years, this price action largely took place within a well-defined sideways channel as marked by the blue box.
By September of 2017, the stock attempted a first breakout, then another January 2018 and finally the last and likely stickiest breakout attempt occurred in May of this year. Although the first two breakouts ultimately saw the stock mean-revert back into the blue channel, note that the stock remained in the upper quadrant of it and all along also held its blue 100 week simple moving average as support. In other words, despite the first two breakouts not working the stock still made higher lows.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see that AMGN stock in May started to break back above the confluence resistance band made up of its 50-, 100- and 200-day simple moving averages. By early July the stock started to slow its ascent again and since then has been consolidating around the January 2018 highs near the $200 mark.
The trade here is straightforward: Buy AMGN stock around current levels in the high $190’s. Any strong bearish reversal on a weekly closing basis is a stop loss while the next upside target is $210.
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