Abbott Laboratories (ABT) stock is trading lower by less than 1% in Thursday's pre-market session after the company beat first quarter 2020 profit and revenue estimates by healthy margins. The medical equipment giant posted earnings per share (EPS) of $0.65 on $7.7 billion during a quarter highlighted by the roll-out of three new tests for the coronavirus pandemic, including the eagerly anticipated Abbott ID COVID-19 test that provides negative results in just 13 minutes.
The former slow-moving stock has been transformed into a momentum play by the new equipment, lifting the shares nearly 50% off the 20-month low posted in March. It has now reached within a few cents of January's all-time high at $92.45, setting the stage for a potential breakout that could find its way up to $110 in the coming months. Even so, accumulation has failed to keep up with bullish price action, predicting a reversal and higher low before a sustained advance.
ABT Long-Term Chart (1987 – 2020)
The stock split four times between 1987 and 1999, when a long-term uptrend ended near $24. Breakout attempts in 2000 and 2002 failed, triggering a decline that ended at range support in the mid-teens in the summer of 2003. A slow-motion bounce took four years to reach range resistance, while the subsequent breakout failed in 2008 after adding just three points. Price action held up well during the economic collapse, offering safe haven, ahead of a 2012 breakout.
The advance added points at a steady pace into 2015, when it topped out in the low $50s, at the same time that biotech and pharmaceutical companies ended major uptrends. A modest decline into the mid-$30s got bought in February 2016, ahead of two support tests that completed a triple bottom in the first quarter of 2017. The subsequent rally completed a 100% retracement into the 2015 high in September 2017 and broke out, establishing a healthy uptrend that posted a graceful series of higher lows and higher highs into July 2019, when buying pressure fizzled out near $90.
A January 2020 breakout failed in February, dumping the stock to the lowest low since July 2018, ahead of a V-shaped wave that has now completed a round trip into the January high. This action forecasts even higher prices in coming months, with a breakout likely to attract strong buying interest. Even so, the stock is short-term overbought after the straight up rally, raising the odds for a final pullback that could offer a low-risk buying opportunity.
The monthly stochastic oscillator also predicts that the stock needs to build support prior to a breakout. It crossed into a sell cycle from the overbought zone in September 2019 and is now traversing through the panel's midpoint. False buy signals are common in this zone, suggesting a downturn that ends near the 50- and 200-day exponential moving averages (EMAs) in the lower $80s. Given the current placement of indicator and price, that reversal could unfold at any time.
ABT Short-Term Chart (2017 – 2020)
The on-balance volume (OBV) accumulation-distribution indicator posted a new high with price in January 2020 and reversed into February, dropping to a seven-month low in March. Buying power since that time has lifted OBV about 75% of the distance back to the prior high, ready to set off a bearish divergence as soon as the stock trades above $92.45. This conflict adds to the odds for a multi-day reversal that could unfold in reaction to this morning's confessional.
The Bottom Line
Abbott Labs has completed a round trip into the January high and could enter a healthy trend advance in the second quarter.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.