Biogen Stock Is on the Cusp of Confirming that a Bottom Is in Place

BiogenBIIB Stock Is Bottom Fishing

It has been a rough ride for Biogen Inc (NASDAQ:BIIB) stock and its investors after the shares peaked at $442.29 in March 2015. In the months that followed, Biogen stock lost 53.5% of its value when it hit a low of $205.43. Ever since that low was forged, I have been looking for a bottom to develop in BIIB stock. There are numerous indications that have developed following this sell-off, and they serve to suggest that a bottom is being put in.

I have been using technical analysis to produce investment strategies for nearly two decades. This method of analysis is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. My views that a bottom is being forged in Biogen’s share price is based on the indicators and price action that have been generated on the Biogen price chart.

The following Biogen chart illustrates a couple of tools that suggest that a bottom is forming.

biogen stock chart

Chart courtesy of StockCharts.com

The first tool that is suggesting the possibility that a bottom has been forged is stemming from the Fibonacci retracement numbers. These mathematical formulas are used by traders to identify countertrend price objectives. The theory surrounding these numbers states that when a stock price corrects from a primary trend, it will retrace approximately 50%–62% of that primary move.

This retracement level is what traders refer as trading into “the box,” and they commonly use this area to cover a short position and/or start building a long position. The theory behind Fibonacci numbers is that, once this level is successfully tested, the predominant trend is ready to reassert itself. In this case, it suggests that a resumption of the bull market is in order.

The second tool that is suggesting that a bottom has been forged is located in the lower panel of the chart above. The moving average convergence/divergence (MACD) indicator is a simple and effective trend-following momentum indicator that uses signal-line crosses to distinguish between bullish and bearish momentum.

A bullish cross was just generated, and it suggests that bullish momentum is now propelling Biogen stock higher. Bullish momentum indicates that the path of least resistance is now geared toward higher stock prices.

Together these two tools are suggesting that BIIB shares have bottomed, and that a move toward higher price has begun. The following BIIB stock chart illustrates indications that support this view, and the price level that will confirm that, in fact, a bottom is in place.

biogenn1

Chart courtesy of StockCharts.com

Moving average crosses are a popular tool used among traders because this tool is used to confirm the type of market that is in place. A golden cross confirms that a bull market is in development, while a death cross confirms that a bear market is in place. A signal is generated when the faster 50-day moving average moves above or below the slower 200-day moving average.

In August 2015, a death cross was generated when the 50-day moving averages crossed below the 200-day moving average. This bearish indicator correctly identified that lower prices were set to prevail.

In August 2016, a golden cross was generated when the 50-day moving averages crossed above the 200-day moving average. The indicator suggests that bull market has begun, but price has failed to break above resistance that is currently containing the price.

This level of resistance was produced shortly after Biogen shares gapped lower in July 2015. Each and every attempt to rally above this level has been thwarted, and a sell-off has followed. The failed attempts at this level have created a trend line that is now acting as a level of resistance. In order to confirm that a bottom is in place, Biogen stock needs to close above this trend line.

The averted death cross that occurred in February 2017 reinforces the view that resistance can be broken. It takes a lot of buying pressure to avert a bearish signal, and the ability to accomplish this feat indicates that BIIB shares are inherently bullish.

The trend line that represents resistance is now the line in the sand, and a break above it will unleash a flood of bullish optimism.

The following Biogen stock chart illustrates the price action that supports a break above the resistance.

biogen stock chart

Chart courtesy of StockCharts.com

The BIIB stock chart above contains constructive price action that support the view that a bottom will be forged when the price breaks above resistance.

Constructive price action consists of impulse waves that advance the price, and consolidation waves that serve to alleviate overbought conditions and set up the next impulse wave. The MACD indicator in the lower panel of the above chart is supporting the view that the consolidation pattern will resolve itself in a bullish manner. This would imply that an advancing impulse wave will develop, taking prices higher.

This wave structure is especially constructive because it also serves to generate a potential price objective that can be used to produce an applicable trading strategy. The theory surrounding this wave structure suggests that the initial impulse waves will match the next impulse wave, and that the consolidation wave acts as a midpoint. This theory applied to the pattern above creates a potential price objective of $347.00

There is a lot that is now predicated upon a break above resistance, and this feat will not be taken lightly, as fireworks can now be expected to follow.

Bottom Line on Biogen Stock

There is now growing evidence that a bottom is being formed in Biogen stock. This potential bottom is supported by indicators and price patterns, but the smoking gun that will confirm this bottom is still predicated on BIIB stock’s ability to close above resistance.