Amgen Looks Healthy

 | Jun 17, 2013 | 9:00 AM EDT  | Comments
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Stock quotes in this article:

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I was checking out the Twitterverse late Friday and saw that one of the traders on my feed liked Amgen (AMGN). I took a peek at the daily chart and scratched my head -- until I pulled up the weekly chart.

Amgen (AMGN) -- Weekly
Source: Dynamic Trader

First I noticed that Amgen's recent high was made just short of a major extension of a prior swing. It's pretty normal to see a healthy correction after a market extends a prior swing -- and, when any security makes a 1.272 extension of a prior swing, I usually start trailing up stops a bit tighter. In this case, Amgen had almost met the 1.618 extension of a prior major swing, and so far this has been followed by a healthy pullback.

Now, the question is whether the bullish trend will ultimately resume. One of the tools that I use every single day in my type of analysis is what I call "symmetry," and what other technicians will call "measured moves." I'll take the current swing, and compare it with prior swings in that same direction. These "symmetry" projections will often help me to reenter a stock or commodity in the direction of the trend. If I can identify a key zone of support with these symmetrical moves, I will watch to see if the stock holds above that zone -- and if it does, I will look for a "trigger" that will tell me it's worth placing a bet.

Well, if you take a look at the Amgen chart above, you'll see I've highlighted two prior corrective declines, $19.92 and $21.55, that were similar to the current $20.80 decline from the April high. Not only do I see some symmetry where the recent low was made, but it also happens to coordinate beautifully with a 0.618 retracement of the prior swing of the January low to the April high.

With these measurements, the price cluster of support comes in between $93.40 and $95.03 -- so I now understand the interest in the possible resumption of the larger Amgen rally.

Amgen (AMGN) -- Daily
Source: Dynamic Trader

With all that in mind, let's look at the daily chart. As you can see, it has some baggage in the form of resistance. Now, there are a couple of different ways we can look at this.

First, we could just look for any buy triggers as the price holds above the $93.40-to-$95.03 support level, with risk defined just below this zone or below the low made prior to the buy trigger. For example, if I had used the 15-minute chart example below, my initial stop could be at $94.10, just below the $94.15 low. Or, if I wanted to give it a bit more room I would use a stop at $91.98, a little room below $93.40-to-$95.03 price-cluster zone.

Amgen (AMGN) -- 15-Minute
Source: Dynamic Trader

But if you want this to be a safer bet, here's what I'd like to see.

First notice that, on the daily chart, since the April 23 high we've seen a stair-step pattern of lower lows and highs. Also note that I've labeled the prior rally swings since early April, which have lasted between $5.71 and $8.65.

Ideally, then, the stock would rally more than $8.65 from this support zone. For example, if the stock rose $12, it would be clearing an important resistance hurdle at the $99.86-to-$102.80 area. Then I would look to buy a pullback to the recent low, waiting for the stock to correct somewhere between 50% and 0.786 toward that low. The risk would then be defined below the low made prior to when it cleared the important resistance hurdle.

Either way, the risk is clearly defined. The potential upside target, if the price does hold above this zone, comes in around the $120 handle. That target, moreover, can be adjusted slightly if a new low is made within the specified zone.

I would consider myself wrong if the $93.40 area were taken out by a decent margin -- that is, $2 or more.

For more information on trade triggers, please refer here

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