How to Play Amgen

 | Apr 27, 2014 | 6:00 PM EDT
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When should we really begin worrying about the recent decline in Amgen (AMGN)? Moreover, where might we see a decent buy entry? To answer these questions, let's start by looking at the weekly chart.

Amgen (AMGN) -- Weekly
Source: Dynamic Trader

When we focus on this bigger-picture chart, we see that the current decline -- from the March 2014 high -- is still only similar to a few of the prior larger declines we've seen since 2008. So far this decline has brought the stock down by $17.66, and the three prior swings, marked on the chart, respectively came to $19.92, $21.55 and $20.80.

My thinking is that, as long as the stock doesn't decline much more it did during those prior pullbacks, we should watch the support zone illustrated on this chart -- $107.41 to $109.04. As long as the price holds above this key area, we can start looking at buy triggers, for example, on a 30-minute chart. Now, if you look at the daily chart, you can see that the price activity is not yet indicating any type of reversal -- but we are still going to stalk this one!

Amgen (AMGN) -- Daily
Source: Dynamic Trader

Let's look at the daily chart next. Here, I can also see some possible support areas that overlap the zone on the weekly chart: $110.65 to $110.85 and then $106.25 to $109.31. Besides this, I have run some Fibonacci timing cycles, and these are telling me that the first week of May carries higher odds of producing a tradable low in Amgen.

Now, I want to emphasize to you that this is a counter-trend trade setup. If you are not comfortable with these, it would be better to stay away until the chart starts to look more constructive. But, assuming you are on board, you shouldn't enter the buy side unless you at least see some reversal indications on something like a 30-minute chart -- triggers that would suggest it's worth placing a bet against one of the support zones.

So let's watch Amgen next week to see if it can hold above the listed zones and fire off a buy trigger. If it does, note that I like to define my risk either below the low end of the support zone or under the low that the stock hit prior to the buy trigger firing off.

Finally, as for when I'd become concerned about this stock: If Amgen doesn't hold above that zone -- if the stock starts declining far more than $22 -- that's when I'll consider that we could see a much deeper downside correction.  

Please refer here for more information on trade triggers.

See here for general guidance on Fibonacci trade setups.

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