Bristol-Myers Squibb Co: BMY Stock Set Up for Further Losses

BMY StockBMY Stock: More Pain

Bristol-Myers Squibb Co (NYSE:BMY) stock was pounded with selling pressure after a news release hit the news wires with the announcement that the company will no longer seek accelerated approval of its immunotherapy cancer drug “Opdivo.” By the time the closing bell rang on Friday, January 20, BMY stock finished the day at $49.23, down 11.28%.

The negative news that sent the stock spiraling lower may have been a bit of a surprise, but the embedded trend towards lower prices in Bristol-Myers Squibb stock was definitely not. I addressed in my previous publication, “Bristol-Myers Squibb Co: Bears Will Continue to Ravage BMY Stock,” that a bearish trend towards lower prices began in the summer of 2016, and the price action continues to support further weakness.

I came to this conclusion by analyzing the Bristol-Myers Squibb stock chart. This was done by using technical analysis, a form of investment analysis that uses historical price and volume data to discern trends and forecast future price moves.

The following stock chart illustrates the defining moment where a bearish trend began.

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Chart courtesy of StockCharts.com

After the conclusion of the financial crisis, BMY stock began to trade within a bullish, orderly, ascending channel. This bullish price pattern is defined by two parallel upward-sloping trend lines, and one trend line represents support while the other represents resistance. For 7.5 years, stock oscillated between these two trend lines until that fateful day in August when the stock price exited this channel in a downward direction.

Exiting the channel broke the bullish trend, and is highlighted on the chart above as a breakdown. The significance of this type of price action is that it suggests that the trend towards higher price has concluded, and it leaves the door open for a bearish trend towards lower prices to develop.

The following Bristol-Myers Squibb stock chart illustrates the developments that followed the broken ascending channel.

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Chart courtesy of StockCharts.com

There is a lot of information illustrated on the BMY stock chart that is listed above, so I will go through it in chronological order.

In August, Bristol-Myers Squibb stock gapped lower on disappointing news surround the same immunotherapy cancer drug “Opdivo.” The breakaway gap that was created broke the ascending channel and indicated that a new bearish trend had begun.

This trend towards lower prices has been defined by the bearish price action. This type of price action consists of impulse waves that pressure a stock lower, and consolidation waves that unwind any oversold conditions that were created and also serve to set up the next impulse wave.

The selling pressure began after BMY stock gapped lower and broke below the ascending channel. The selling pressure continued for two months until it finally abated. The drop from approximately $75.00 to $49.00 defines an impulse wave and is highlighted above in green.

In October, the stock bounced off the $49.00 level, and Bristol-Myers Squibb stock proceeded to trade as high $60.00. This bounce defined the consolidation wave, which served to unwind any oversold conditions that were created and set up the next impulse wave.

On January 11, 2017, BMY exited the consolidation pattern in a downward direction, and this is highlighted as a breakdown on the chart above. This price action indicated that a new impulse wave lower had begun and was the basis of my previous publication.

The theory behind impulse waves and consolidation waves is that the consolidation wave acts as the midpoint between two impulse waves. These impulse waves tend to mirror each other in terms of distance. Under this premise, the completion of the consolidation wave suggests that another sell-off is set to ensue with a potential price objective of $35.00 on the stock.

The bearish news disseminated on Friday pressured Bristol-Myers Squibb stock considerably lower, and as a result, stock is now testing the low at $49.00, which was created in October 2016. If that stock falls below this level of support, a precipitous sell-off could ensue, which could put the $35.00 price objective to a test.

The On-Balance Volume (OBV) indicator in the lower panel is an indicator that uses volume to compute buying and selling pressure. It is produced by cumulatively adding volume on up days and subtracting volume on down days. This indicator is used to confirm the current trend, and the new low that was just created suggests that a break below support is likely.

Bottom Line on BMY Stock

I am bearish on Bristol-Myers Squibb stock because the price action and indicators clearly support this view. I will continue to be bearish until the target of $35.00 is met, or BMY stock gives me technical reasons to question this view.