Technical analysis suggests shorting AstraZeneca PLC ADR

Exchange: NYSE

Sector: Healthcare

Industry: Drug Manufacturers — Major

Entry strategy

Price: $35.7-36.7

Stop-loss: $39.45

Take profit: $32.2

Investment horizon: until the mid-March of 2019

Company details

The transnational company AstraZeneca PLC was founded in Cambridge, UK in 1992. It develops and sells prescription drugs for the treatment of cancer, cardiovascular, metabolic, respiratory, gastrointestinal, neurological and infectious diseases.

The issuer’s capitalization is more than $90 billion (group + Large).

The fundamental description of the idea

In early 2019, we continue to adhere to the basic idea: the trend in the stock market turned down. At the time of the forecast, January, 16th, the main US index — S&P 500 — has approached the expected resistance zone of 2600-2650 points. Perhaps, the sales, which began in the autumn of 2018, will soon resume with a new force.

The basis for the investment idea on AstraZeneca PLC is technical analysis. On the price graph, a vertex was formed and confirmed — a widening triangle — and a breakdown of the main uptrend line occurred. News of this company at the time of the forecast does not contain negative.

Analysts’ consensus forecasts have become more bullish than in the previous quarter (see Table 1). The reason for this is the share price which fell by 15% in the fourth quarter of 2018.

Table 1. Consensus analysts’ forecasts for the AstraZeneca PLC common stock as of January 16, 2019. Source: ReutersОткрыть оригинал

Improving consensus forecast is typical for many stocks after the New Year sales. It takes time for negative effects of trade wars, the risks of Brexit, debt problems due to the high rates of the Fed and other fundamental reasons to be seen in the data.

Technical analysis (trading plan)

The main scenario for this stock is further sales. The seasonal weakness of the stock is January — March of each year which is an additional advantage of this idea (see Graph 1).

Graph 1. Seasonality of Avery Dennison Corporation stock ($AVY). Source: Equity ClockОткрыть оригинал

However, before shorting the stock it is better to wait for the signs of weakness in the broad market and a pullback in the stock price to resistance of $36.5-37.5. Moreover, it is important to control risks through position size and stop-loss, since there are no obvious negative features of for the issuer.

Trading plan for the stock:

Graph 2. Technical analysis of AstraZeneca PLC ($AZN). Source: TradingViewОткрыть оригинал

Published on the 18th of January, 2018

Also published on Medium.