After two days of selling, should investors be smelling something fishy in Amarin (NASDAQ:AMRN) or seeing the opportunity to bottom-fish? Let’s take a look at what’s happening off and on the Amarin price chart and offer a solution for would-be investors to take a position in AMRN while avoiding unwanted side effects.
It’s been a jolly start to the week for Wall Street. From Apple (NASDAQ:AAPL) to Visa (NYSE:V) or the S&P500, fresh all-time-highs have been enjoyed the past two days as investors cheer a ‘phase one’ trade deal with China. And pharmaceutical outfit Amarin was right there with the best of them.
On Monday shares of Amarin hit a relative high and jumped nearly 4% out-the-gate, but those gains proved short-lived. By the closing bell, AMRN stock was off a bit more than 5%. So, what stank up the joint?
Amarin’s day-to-day price swings have little to do with headline drivers responsible for risk-on and risk-off decisions in the broader market. For Amarin investors, it’s all about the company’s fish-oil pill Vascepa. The drug is now available to millions more patients after the Food and Drug Administration expanded the label, i.e. uses for Vascepa on Monday.
The announcement is good news as the FDA’s decision translates into increased revenues for Amarin. And CEO John Thero stated Vascepa could change the treatment paradigm of cardiovascular care. But the labeling by regulators is more restrictive than what the drug manufacturer and Amarin investors were hoping for, and that’s bad news.
Broker Oppenheimer sees the possibility for five to eight million patients to use Amarin’s Vascepa. That compares to an original indication of around four million. It sounds like a lot, but this population falls well-short of an expanded market estimated at 40 million if the label included people with mild-to-moderate triglyceride levels.
Still and despite the obvious disappointment, on the AMRN price chart the question remains whether today’s sell-the-news inspired profit-taking leads to even smellier price action or bottom-feeding by tomorrow’s Amarin investors?
Amarin Monthly Price Chart
Source: <a href="https://www.tradingview.com/" target="_blank" rel="noopener noreferrer">Charts by TradingView</a>
Looking at the monthly chart and there’s little doubt Amarin stock has come a long ways in little over a year. Monday’s high of $26.12 relative to the stock’s lowly sub $3.00 price tag in September 2018 is obvious enough. Yet the gain of more than 750% fails to appreciate the technically demanding work done during this period. In fact, the price chart suggests Amarin could go much higher.
Since October 2018 Amarin has established a constructive, albeit volatile lateral congestion pattern around stock prices from mid-2011. Moreover, with Amarin having rallied roughly 85% to hit narrow fresh highs at Monday’s peak in just two months, there’s also obvious reason to see the sell-off as a bout of simple profit-taking.
Now and as prior resistance comes into play as technical support, it’s time to consider buying Amarin shares on this price weakness. This more optimistic view is backed by Amarin’s stochastics which have just signaled a bullish crossover near oversold levels.
The Bottom Line on Amarin
If investors can ignore today’s headline warnings in favor of the Amarin price chart, this is a lower-risk, higher-reward set-up. Still, this is a volatile, one-product pharma stock.
Being dismissive of those risks would be foolish. With caveats in place, if you’re going to fish in Amarin I’d strongly recommend a limited and reduced risk options-based strategy instead of a naked long stock position which could always turn fatal.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
