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ABBV'S Band of Resistance

04/19/18 03:50:01 PM
by Stella Osoba, CMT

AbbVie's (ABBV) stock got slammed after disappointing results on small cell lung cancer drug, Rova-T, test results. The drug was the lead product of Stemcentrix, the biotech company ABBV acquired back in 2016 for $5.8 billion. On Thursday, March 22, 2018, ABBV'S stock gapped down and lost 12.8% of its value in heavy trading. The gap down resulted in a band of resistance which is the subject of this article.

Security:   ABBV
Position:   N/A

After an impressive uptrend through 2017, culminating in a gap up and new high of 25.86 on January 26, 2018, ABBV trended sideways until March 21, 2018, finding support at its 50-day moving average. Though news of Rova-T test results came out after market close on Wednesday, the chart showed that the technicals were already weakening with price making a series of lower highs in February and March 2018. The sideways move was evidence of indecision as the bulls and bears battled, with neither side able to assert itself and gain dominance until March 22, 2018.

The announcement of the poor test results was news the market was waiting for that caused a decisive move in the stock, ending the stalemate. Selling pressure accelerated the price decline and with the resulting falling window or gap, it was clear that the battle had been won by the bears. Gaps or windows as they are called in candlesticks are continuation signals. The Japanese say, "go in the direction of the window." The selling pressure meant the bears were now in control. Bulls had retreated for the time being.

Figure 1. Daily chart for ABBV.
Graphic provided by:
There is another Japanese saying that goes, "Corrections stop at the window." This means that the entire price vacuum created by the falling window now becomes resistance. (See chart in Figure 1). If price rallies to the top of the resistance band, but does not close above it, resistance stays intact. So in this case we should be looking for price to close above 110.72 for the resistance created by the falling window to be negated. Until this happens, the better trade might be to short at the bulges.

Stella Osoba, CMT

Stella Osoba is a trader and financial writer. She is a frequent contributor to "Technical Analysis of Stocks and Commodities" magazine and " Advantage" as well as other financial publications.

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