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Why AbbVie Stock Could be Headed Lower

A head and shoulders pattern has formed in the chart of AbbVie. When this happens, a down move is expected. Read more to learn how to profit from this trade.

A head and shoulders pattern is emerging in the chart of AbbVie.  If this happens, a down move is expected in the stock.

AbbVie Inc. (ABBV) is a drug company with leadership roles in therapeutic areas such as immunology, hematologic oncology, neuroscience, aesthetics, eye care and women's health. The company's top drug, Humira, represents close to half of the company's current profits.

The company outperformed fourth quarter estimates for earnings and sales. It has been successful in expanding labels for cancer drugs, Imbruvica and Venclexta and has a strong late-stage pipeline. ABBV’s acquisition of Allergan has diversified its revenue into new areas, providing it with additional long-term growth prospects.

ABBV had $8 billion in cash as of the end of the latest quarter, compared with $4.8 billion in short-term debt. The company is also quite profitable with a very high return on equity of 47.9%.

While the stock has shown long-term bullish momentum, its short-term performance has been mixed. This has led to a Momentum Grade of C in our POWR Ratings system.

Take a look at the 1-year chart of ABBV below with the added notations:

  Chart of ABBV provided by TradingView

Over the past couple of months, ABBV has created a key level of support at $102 (green). That line is also the “neckline” for the stock’s potential head and shoulders (H&S) reversal pattern. Above the neckline you can see the H&S pattern (red) has almost been completed.

Confirmation of the H&S would occur if ABBV were to break the support, and lower prices would be expected from there.  Therefore a short trade could be entered on a break below that $102 level.

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Christian Tharp, CMT

@cmtstockcoach


ABBV shares rose $0.60 (+0.57%) in premarket trading Wednesday. Year-to-date, ABBV has declined -0.10%, versus a 4.88% rise in the benchmark S&P 500 index during the same period.



About the Author: Christian Tharp, CMT

Christian is an expert stock market coach at the Adam Mesh Trading Group who has mentored more than 4,000 traders and investors. He is a professional technical analyst that is a certified Chartered Market Technician (CMT), which is a designation awarded by the CMT Association. Christian is also the author of the daily online newsletter Todays Big Stock.

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