The stock of BioMarin Pharmaceutical Inc. (Nasdaq:BMRN) has found itself in the midst of what could be described as a period of price consolidation, having spent the whole of 2017 and a greater part of 2018 locked in the range formed by an $80/share floor and a ceiling of $106. So what is the price outlook for BMRN as we head into the home stretch of 2018?
BioMarin continues to work on its gene-based therapy for haemophilia, a disease marked by absence of a critical clotting factor in the blood of its sufferers. As this November Seeking Alpha article covers in detail, BioMarin has several growth drivers heading into 2019.
This was mirrored by institutional investment in recent months like MML Investor Services LLC increasing its position in BMRN by more than 60%.
Technically speaking, the weekly chart shown below indicates that the upper trend line connecting BMRN’s highs for the past 18 months was broken to the upside in July 2018. The price action is now in pullback mode, with price retreating to the broken trendline.
BMRN Weekly Chart: December 14, 2018
Usually, such broken trendlines will perform a role reversal, and in the case of a broken resistance as seen on the weekly chart, the trendline is expected to start functioning as a support. Therefore, the expectation is that the price will bounce on this trendline and start to aim for higher prices.
The next chart to look at will be the daily chart, where the Fibonacci retracement tool is used to get a clearer picture of what is going on with price action. At $93.89, price is located between the 50% Fibonacci retracement level ($91.28) below, and the 61.8% Fibonacci retracement level ($94.86). The areas marked 1, 2 3 and 4 represent the spots on the 50% Fibonacci retracement level where price found support between July and the present time. Price also found resistance in November and early December at points 5 and 6, and these were at the 78.6% Fibonacci retracement price level.
BMRN Daily Chart: December 14, 2018
From the daily chart, it is clear that the 50% Fibonacci price level is going to prove useful in determining the price support, but the 61.8% area is not a very strong resistance level. This is going to be a major consideration in the light of the price bounce on the weekly chart that could occur if the upper trendline on that chart does its role reversal job properly.
So what are the trade scenarios for BMRN going forward?
Trade Scenario 1
Price action is expected to bounce off the upper trendline in fulfillment of the role reversal that is expected to occur. On the daily chart, this bounce could occur at the 50% Fibonacci retracement level of $91.28. The 78.6% Fibonacci level has proven to be a stronger resistance area than the 61.8% Fibonacci level, so we may see this price bounce bursting through the 61.8% Fibonacci level all the way to the $99.97 mark where the 78.6% Fibonacci level is located. This price level is close to the $100 psychological price area, which may serve as a reinforcement of the $99.97 resistance.
Trade Scenario 2
If the 61.8% Fibonacci price level is able to offer itself to resisting the price bounce from the $91.28 price level, then we may be in for an extended period of consolidation between these two Fibonacci price levels. How long this will last is not known.
We expect price to bounce on the strength of the role reversal play on the weekly chart, but the price activity around the Fibonacci retracement areas on the daily chart will be the beacon to show how far such a bounce will go.
The long-term and mid-term outlook of BMRN is:
- Long-term – bullish
- Mid-term – neutral to bullish
The long-term market sentiment as seen on the weekly chart is bullish, because there has been a breakout of the upper trendline, followed by a pullback to the broken trendline. Price of BMRN is therefore expected to bounce at this trendline on the back of a role reversal play.
The outlook for the medium term is showcased on the daily chart and is expected to be neutral to bullish. The bounce is expected to occur at the 50% Fibonacci price level, but price may either stall at the 61.8% price area, or keep pushing beyond it to hit the $100 price level. Any further upsides will depend on the market sentiment in Q1 2019, when the full-year earnings reports for BMRN are expected.
Please note: This analysis was done on the weekly and daily chart. These moves may take several weeks to play out, and should be factored in by traders when making their decisions.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.