Last week’s big news and some slightly fishy price action in Amarin (NASDAQ:AMRN) could have investors turning their noses on AMRN stock. But off and now on the price chart, that’s looking increasingly like a very big mistake. Let me explain.
It’s been a great start to 2020 for Wall Street, fueled by global trade deals, a string of strong economic reports and spillover momentum from 2019’s market-breaking performance. But a rising tide doesn’t always float all boats.
Among blue-chip companies, JPMorgan Chase (NYSE:JPM), Chevron (NYSE:CVX) and Walmart (NYSE:WMT) are three holdouts unwilling to party like its 1999. From earnings to the price of oil to simply falling out of favor with Wall Street, there are worthy drags to help explain away the weakness. But AMRN stock is different.
Amarin Starts 2020 on the Wrong Foot
The biotech’s shares are off by roughly 1% thus far in 2020. Its relative and absolute underperformance in this year’s early going is all the more a mystery following big news this past Monday. British drug manufacturer AstraZeneca (NYSE:AZN) announced it was pulling the plug on a phase 3 clinical study for Epanova. The decision trails data indicating a “low likelihood” its fish oil pill would help patients with mixed dyslipidaemia (MDL) at increased risk of cardiovascular disease. It’s a big win for AMRN stock.
In December, the U.S. Food and Drug Administration expanded the uses for Amarin’s Vascepa, making the drug available to millions more. That news came after regulators determined the company’s fish oil pill reduced cardiovascular risk. It wasn’t all good news, though. The labeling by the FDA was more restrictive than many hoped for and saw shares succumbing to a sell-the-news reaction.
Now with a large threat from AstraZeneca removed, the upside has grown big time. Amarin currently has this market to itself. And as InvestorPlace’s Will Ashworth recently wrote, with Vascepa’s estimated peak revenue coming in at $4 billion over the next few years, that’s a tenfold increase over the company’s 2019 sales.
The potential of Amarin stock to be bought out at a substantial premium has been raised significantly. Conservatively this could look like $30 by the end of 2020 and even $40 over the next 12-18 months. And as we enter a new trading week, the bullish possibilities on the price chart are looking more promising.
AMRN Stock Monthly Price Chart
This past week’s AstraZeneca news sent AMRN stock about 4% higher. But there wasn’t any follow-through on those gains. Worse yet, shares tumbled off their weekly high, fell beneath mid-channel line support and reaffirmed December’s bearish reversal candlestick. That’s the technical grounds for the bear case. And it’s to be respected. But not right now.
With today’s stealthy, market-defying bid in Amarin, the stock has rebounded back above its former 10-plus year high and mid-channel line within its volatile, but bullish congestion pattern. Coupled with a supportive-looking stochastics, the evidence suggests it’s time to go long AMRN stock. The anticipation is building a more powerful January candlestick to help propel shares aggressively higher. In the months ahead, shares might even exceed the channel.
How to Trade Amarin Today
With shares near $21.40, the June $24/$28 call spread is priced for $1.25. This options strategy is favored for its limited and reduced risk. It also offers investors well-placed upside potential over the next five months.
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.