BMY Stock Is Trending Lower
Bristol-Myers Squibb Co (NYSE:BMY) stock is still feeling the after-effects of the negative news surrounding its cancer drug “Opdivo,” which failed a study that would have expanded its use in lung cancer patients. This bad news is further compounded, as the entire pharmaceutical sector is now a campaign focus of both of the main U.S. presidential candidates. These two factors have proved to be influential headwinds, and BMY stock investors have suffered as a result.
I use price charts to set systematic trading strategies, and this process is instrumental in determining the trend in a stock price. The price trend is an effective tool in determining the health of a company. It’s not a complex theme; stocks trending higher presume that a company is growing and is conducting business practices well, and a downtrend presumes the opposite.
Bristol-Myers Squibb stock has sold off this year and, in the process, a major trend has been broken. This is the primary reason I am bearish on BMY stock. A new trend of lower prices is putting the health of this company into question.
The following Bristol-Myers Squibb stock chart illustrates the broken trend.
Chart courtesy of StockCharts.com
There are two parallel lines that define this trend. The pattern known as an ascending channel has two trend lines that define the upper and lower bounds. The share price oscillates between these two lines for as long as the trend permits. A trend reversal occurred when BMY stock closed below the lower parallel line that acted as support.
At the current juncture, the ascending channel is broken. This trend has sustained the bull market move since the lows generated in 2009. After a seven-year run, I can only presume that the trend for Bristol-Myers Squibb stock will be sideways to down for some time to come.
The following Bristol-Myers Squibb stock chart illustrates the price action that broke the bullish trend.
Chart courtesy of StockCharts.com
In August, after news was disseminated regarding the failure of Opdivo, BMY stock opened lower the next day, leaving a sizable gap on the price chart. This gap was a breakaway gap, and these gaps rarely get filled and almost always signal that a new trend has started.
There are many different types of gaps that traders use as signals to help decipher trends. The different possible types—for this example—are breakaway, continuation, and exhaustion gaps. These gaps occur at the beginning, middle, or end of a defined trend. The trading action can help decipher which type of gap it is, and that depends on how the share price will follow through.
In October, BMY stock opened lower once again, leaving another gap on the chart. The question that remains is, which type of gap is this?
The indicator in the bottom panel of the above chart labeled “OBV” stands for on-balance volume. This indicator uses volume to compute buying and selling pressure. It is produced by cumulatively adding volume on up-days and subtracting volume on down-days. The data is then plotted on a chart. This information is used as a leading indicator, as well as to confirm the current trend.
The OBV indicator is confirming the bearish trend, and this increases the odds that the gap is a continuation signal. If this is the case, lower prices are expected, and the actual lows have yet to be put in. An argument can be made that the next level that Bristol-Myers Squibb stock will test is $45.00 (if the gap in question is indeed a continuation gap).
The Bottom Line on Bristol-Myers Squibb Stock
I am bearish on Bristol-Myers Squibb stock, and this bias is based on the proliferation of bearish signals that surround the price. My bias on BMY stock will continue to remain bearish until the price action suggests that a bottom has been put in.