Biotech and pharmaceutical stocks are always prone to headlines. Occasionally stocks like Amarin (NASDAQ:AMRN) experience big gaps and trading. This could be from acquisitions, news of breakthroughs, or failures in drug development.
![Amarin Stock is at Sky-High Levels Already Assumes All the Good News](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
Amarin stock is up twice as much as the S&P 500 and almost three times more than the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) and the Health Care Select Sector SPDR Fund (NYSEARCA:XLV).
The opportunity from here is that the AMRN stock price is going into January primed for a big move. The stock range has tightened into a point of a lot of energy gathering in the chart and it is about to resolve itself.
There Is Support for Amarin Stock
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Fundamentally, Amarin stock is not cheap. It sells at a premium of 22 times sales. Clearly the buyers are hoping for future prospects to be much greater than current metrics. It fell almost 3% on Friday, but it is still bouncing off short-term support that exists near $20 per share. As long as this continues, the tension that exists in Amarin stock right now is likely to breakout to the upside and try to set new highs.
Conversely, there’s always the possibility that Wall Street wants to fill the gap down to $18 per share. But even if that happens, technically this is OK. $18 per share was the neckline from which they broke out after the earnings in November.
When a stock breaks out, it often wants to retest the neckline for support before the bulls can use it as base for higher highs. So this would represent somewhat normal price action for Amarin.
Politicians Threaten the Sector
The U.S. is going into in election season, adding another layer of doubt for the sector. Drug companies are a favorite football for politicians. From both sides of the aisle, they love to attack drug companies for either their advertising practices or their product pricing. So far this has not materialized in the sector. After all, IBB and the XLV are up over 15% since last October. So the threat still looms even though it hasn’t materialized yet.
From a trading perspective, it is worrisome that Amarin stock has not been able to hold greens on positive news. Perhaps this is because it faces stiff competition from deeper pockets. But in this case, there might be enough business to go around for everyone.
So even though Amarin can’t hold the spikes, it will still be able to hold the trend. Knowing that there is business to be had, investors will buy the dips.
Upside Path More Likely for AMRN
Therein lies inherent support in Amarin stock. On bad days it make sense to either initiate new positions or add to existing ones for long-term investors. The millennials are the next big group that will control much of the spending in the U.S. and they are approaching the age where they become candidates for heart disease. This will immediately benefit the AMRN bottom line.
Simply put, even though the Amarin stock chart doesn’t look that exciting yet, it makes sense to hold it for the long term. Biotech and healthcare stocks are notorious for exaggerated moves and I bet the next one for Amarin would bring greens into the portfolios in which it sits.
Of course this requires management to continue to execute on plans as they have been. There aren’t many real experts in the field so most investors rely on what they read. For example, only time will tell if the Vascepa drug for heart disease will be a home run or not.
This is why it is important to pay attention to the stock chart itself because it’s agnostic of news. Price patterns unfold in predictable, consistent patterns and levels. Amarin stock shows support on several levels below current prices for the mid and long-term and this favors the upside scenario.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.