Abbvie Inc (ABBV) fell hard in 2018. It peaked at $126 in January of 2018 and came down to $88, a plunge of 29.5 pct both in April and July of 2018. How to play this plunge in this giant drug stock? Is this a buy or a sell at current levels given our sector forecast that Healthcare Stocks Will Outperform In 2018.
ABBV has been the leading drug manufacturer in recent times. It grew bigger than traditional giants like Pfizer or GSK. But ever since it peaked at $125 early 2018 its stock price continued to plunge. Note that it had a market cap of $187B at its peak. Needless to say, this is one of the largest health care companies in the world!
Investors tend to be obsessed by finding out what the ‘reason’ is for any decline, including the one of ABBV.
However, at InvestingHaven we have learned the hard way that there is zero value in trying to understand why a stock is falling. The only thing that matters, from an end result perspective, is to forecast that a decline is coming, or, at least, anticipate in time to cut losses or identify a buy opportunity.
‘Start with the chart’ is the method that helps you realize this!
Abbvie (ABBV): Not so attractive chart setup, how to play it
The chart of ABBV can be read in two ways: a rising channel over the last 6 years combined with strong horizontal support (purple bar on the chart).
What to conclude from this chart setup?
First, things look grim for this stock, regardless whether the health care sector is strongly bullish.
Second, from a price perspective, if $87 fails to hold we expect the $68 – $74 area to be the strongest support. That is a minimum decline of 17 pct.
However, in order to prepare investor for a worst case scenario we must add that the $60 – $62.5 is also possible even if chances are very slim of this scenario to materialize.
Third, what is the bullish outcome in case the current breakdown attempt appears to end right away, and current prices turn into support? We expect price to gap up to surprise shorters in such a scenario.
Note: this article is only meant for educational purpose.