Biotech Stock: The Sky Is the Limit for This Name
Biotechnology stocks represent a great opportunity for investors who are fortunate enough to get into the right names at the right time.
The biotech stock sector has always been a stellar performer in equity bull markets. This sector represents a number of companies that use various medical breakthrough technologies to develop treatments for patients who are afflicted with an illness. In an investor’s perspective, this sector shares stories of heartbreak and triumph, as investment outcomes are heavily weighed upon drug trials and U.S. Food and Drug Administration (FDA) decisions.
Amphastar Pharmaceuticals Inc (NASDAQ:AMPH) stock represents the best of both worlds when it comes to a biotechnology stock. The company is both a developer and a gateway for generic drugs. This gives an investor some peace of mind as some of the risks associated with a biotech stock is diversified away. The business model is not the sole reason why I like this investment; I always look for companies that have constructive chart patterns that can help me discern the current trend.
The following chart illustrates the constructive chart pattern.
Chart courtesy of StockCharts.com
AMPH stock broke out of a descending triangle consolidation in May 2015; a descending triangle is a technical pattern with two converging trend lines. The lower trend line is flat and acts as support, while the upper trend line slopes downward and acts as resistance. The price will continue to bounce off these two trend lines until one line is finally broken. This pattern is a consolidation pattern, and a breakout will determine the direction of the trend. When AMPH stock broke out above resistance, the pattern was complete and the trend was reasserted to the upside.
Shortly after breaking out of the triangle, AMPH stock generated a “golden cross” on May 27, 2016. A golden cross is a bullish signal that is produced when a 50-day moving average, highlighted in blue, crosses above a 200-day moving average, highlighted in red. Investors use this signal to confirm that a bull market is on the horizon. It is always wise to trade in the direction of this signal. An investor holding a position should either be long or neutral after this signal is generated.
Two signals within the same month were suggesting and confirming that the consolidation had ended, and that the stock is free to trend higher. If that were not enough, one more signal has just recently reaffirmed the bullish bias, as the following chart illustrates.
Chart courtesy of StockCharts.com
The chart above illustrates the bullish price action that has dominated trading in AMPH stock since its inception. The line highlighted in green represents the position as it trends, and the line highlighted in pink represents the position as it consolidates. The pattern is clearly bullish, as a new high has just reaffirmed the trend.
The level of resistance that stood at the previous peak had fallen and is now at a level of support. The break above the previous high also coincides with a new-all time high, and this development is very bullish. New all-time highs represent a position that has no overhead resistance, and it now possesses the ability to trend higher, as the path of least resistance is now in that direction.
The only investors who are upset about this event are the ones who either shorted or sold out prior to the new high. The shorts will have to cover eventually if the trend does continue and, in order to cut their losses, they will have to repurchase shares at the higher prevailing price, and this will further drive the trend.
The Next Big Biotech Stock? Maybe
In bull markets, the biotechnology stocks are amongst the best-performing sectors. It is not uncommon for investors in biotech stocks to experience windfall returns when the company they have invested in discovers a new medical breakthrough or receives FDA approval for a drug they have developed. AMPH stock represents the best of both worlds, as they are a reseller of generic drugs and develop their own. Throw in the bullish price chart and this investment has everything I need to make an informed investment decision.
AMPH stock is just one of many companies that define the biotechnology sector. If this sector is indeed a focus of your attention, I suggest that you check out the following report released by my colleague: “This Device to Slash your Health Insurance Bills by up to 74%?” Click HERE for the free report.