On Wednesday, January 11, 2017, President-elect Donald Trump attacked drug makers in a press conference and accused them of “getting away with murder.” This “murder” reference was in regards to their predatory pricing polices that have been scrutinized by the mainstream media. This comment caused a barrage of selling that sent Bristol-Myers Squibb Co (NYSE:BMY) stock spiraling lower by 5.3%. (Source: “Trump says drugmakers are ‘getting away with murder,’ and biotech stocks plunge,” CNBC, January 11, 2017.)
The entire pharmaceutical sector is now in the cross hairs of the new President-elect and any policy changes he instils when he gets into office will no doubt hurt the bottom lines of these companies. The timing of this rhetoric couldn’t have been worse because BMY stock was begging to shake off some of the effects that followed a failed study of its cancer drug “Opdivo.”
This failed study that came to the limelight in August of last year caused a significant sell-off to ensue in Bristol-Myers Squibb stock. This sell-off caused some serious damage to the BMY stock chart. The 5.3% drop that occurred on Wednesday is now suggesting that the bearish trend that began in August is now set to continue.
The following Bristol-Myers Squibb stock chart illustrates the bearish trend that began shorty after the August sell-off ensued.
Chart courtesy of StockCharts.com
In August of last year, a sell-off gripped BMY stock and caused it to break below a bullish trend that began in 2009, after the fallout of the financial crisis.
The trend that defined the bullish move since 2009 was an ascending channel. This trend contained two parallel upward-sloping trend lines that defined upper resistance and lower support. For 7.5 years, BMY stock oscillated between these two trend lines, until a trend reversal occurred in August when BMY stock closed below the lower trend line that acted as support.
The break below the channel suggests that the bull market that began in 2009 has ended, and the door for a bear market to ensue has swung wide open.
The following Bristol-Myers Squibb stock chart illustrates the price action that suggests that the bearish trend towards lower prices is now set to continue.
Chart courtesy of StockCharts.com
This daily chart of Bristol-Myers Squibb stock illustrates that in August, after news regarding its failed cancer drug study, BMY stock opened the trading day lower, leaving a sizable gap on the BMY stock chart. This breakaway gap is significant because gaps such as these rarely get filled, and almost always signal that a new trend has begun.
It was this sell-off from $74.00 to a low below $50.00, that shattered the bullish ascending channel. The linear motion of this sell-off suggests that this was an impulse wave. An impulse wave is a term used to describe the price action on a stock chart.
Price action can be broken down into impulse waves, which move price in a linear motion to a new level, and consolidation waves, which unwind any extreme conditions that were created and set up the next proceeding impulse wave.
The price action from October onwards is highlighted as a consolidation wave on the chart above, and the sell-off that ensued on Wednesday caused price to exit this pattern to the downside. This price action suggests that a new impulse wave lower is now set to develop.
The theory behind impulse waves that are separated by a consolidation wave is that they tend to mirror each other in terms of length. If I apply this theory to the current pattern on the BMY stock chart, it suggests that another sell-off is set to ensue that will take Bristol-Myers Squibb stock to approximately $35.00.
Bottom Line on BMY Stock
I am bearish on Bristol-Myers Squibb stock because the trend towards lower prices is set to continue as the new administration led by Donald Trump is going to set policies that will hurt the company’s bottom line. I will continue to hold a bearish view on BMY stock until the chart suggests that another view is warranted.