ABBV Stock: Indications Support higher Stock Prices
The stock market is on a torrent pace of forging new highs, which created a bullish backdrop towards all equities. I have it made it clear in numerous publications that the once-lagging biotechnology sector has finally made a turn, and there are now a number of great names in this sector staging a move. AbbVie Inc (NYSE:ABBV) stock is one of them, and as always, it is the AbbVie stock chart that has piqued my interest. The price action on the shorter-term chart is compelling, but it’s the price action on the long-term chart that has me really excited about the prospects of ABBV stock going forward.
I have the luxury of scanning hundreds of stocks per day and picking the ones I find most compelling. No one could possibly delve into the minutia of this many companies, so I rely on my abilities to decipher indications that are generated on a company’s stock chart. For those not familiar with this method of analysis, it is know as technical analysis and it is the basis of all my investment strategies because the indications it produces are extremely valuable and, most importantly, timely.
The long-term ABBV stock chart using a monthly scale is why I am so enamored with the prospects of this investment going forward. Both the price action and an influential momentum indicator are suggesting that higher stock prices are on the horizon.
The following AbbVie stock chart illustrates the main reasons why I am enamored with this company and believe that higher stock prices are on the horizon.
Chart courtesy of StockCharts.com
The price action on the stock chart is a textbook example of constructive price action, which consists of an alternating two-wave structure that creates the foundation for a sustainable trend.
The waves highlighted in green are impulse waves and they define the point in time in a bullish trend when the stock price stages a bullish advance. An impulse wave is characterized by its swift and linear movement, and this wave will usually persist until the investment reaches an overbought condition.
The wave highlighted in purple is a consolidation wave and it defines the point in time in a bullish trend when the gains from the preceding impulse wave are digested in order to alleviate the overbought conditions that were created. This wave is characterized by a sideways-trading range that usually trades counter to the predominant trend. This wave is very important because it sets up the necessary environment so a new impulse wave can develop.
The indicator located in the lower panel labeled “MACD” has been instrumental in both suggesting and confirming which of the alternating waves is in development. MACD is an acronym for moving average convergence/divergence, and this indicator is used to determine whether bullish or bearish momentum is influencing the price action. Determining whether bullish or bearish momentum is influencing the trading action is done using the crossing of a signal line.
Bullish momentum is needed in order to propel a stock higher. Without it, staging an advance is quite difficult. The MACD indicator was in bullish alignment until August 2015, and in that span of time, the stock price appreciated from $27.42 to $66.36, resulting in a gain of 142.01%. This indication correctly suggested that bullish momentum had created a path of least resistance that was geared towards higher prices. So as a result, this ABBV stock price advance is highlighted as an impulse wave.
In August 2015, a bearish cross was generated, and over the course of the next 20 months, AbbVie stock failed to stage an advance. The high that was set in July 2015, at $66.36, stood as a significant level of resistance. This is a prime example that while the MACD indicator is engaged in a bearish cross, the bearish momentum suggested by it serves to contain the stock price from staging an advance. As a result, this time frame where the stock price failed to stage an advance is highlighted as a consolidation wave.
In June 2017, the stock price exited the consolidation wave in upward direction, confirming that an impulse wave was now in development. This impulse wave was first suggested as a possible outcome in April 2017, when a bullish MACD cross was generated, indicating that bullish momentum was once again influencing the trading action in ABBV stock.
These two confirming indications are effectively suggesting that a stock price advance is underway, and much higher AbbVie stock prices can now be expected to follow.
Bottom Line on AbbVie Stock
I am bullish on the biotechnology sector and AbbVie stock is no exception. Bullish price action and a bullish momentum indicator support the notion that a price advance is now underway, and as result, I am bullish on the prospects of ABBV stock heading forward.