New Dow component Amgen Inc. (AMGN) is trading at a four-month low in Thursday's pre-market session after beating third quarter 2020 top- and bottom-line estimates, posting a profit of $4.37 per share on a healthy 12.0% increase in year-over-year revenue to $6.42 billion. However, a sharp reduction in fourth quarter earnings per share (EPS) guidance got the attention of sidelined investors, prompting little or no buying interest.

Key Takeaways

  • Amgen beat third quarter top- and bottom-line estimates but lowered fourth quarter profit guidance.
  • The stock has dropped more than 8% since it was added to the Dow Jones Industrial Average in August.
  • Growing sell signals raise the odds for continued downside into the $190s.

Amgen stock has dropped more than 8% since it joined the Dow on Aug. 31, caught in a steady decline that has also affected Merck & Co., Inc. (MRK), Pfizer Inc. (PFE), and other pharma blue chips. The selloff is understandable, given the steady unwinding of the COVID-19 speculative bid and prospect of a presidential administration that is likely to play hard ball with drug prices and the health care industry. Amgen has a manufacturing agreement to bring Eli Lilly and Company's (LLY) COVID-19 therapies to market but has no active in-house candidates.

Wall Street consensus on Amgen is marginally positive, with a "Moderate Buy" rating based upon 10 "Buy," 10 "Hold," and 0 "Sell" recommendations. Price targets currently range from a low of $215 to a Street-high $308, while the stock is set to open Thursday's session more than $43 below the median $258 target. This humble placement highlights mixed sentiment that culminated in a failed breakout to new highs earlier this month.

Market sentiment refers to the overall attitude of investors toward a particular security or financial market. It is the feeling or tone of a market, or its crowd psychology, as revealed through the activity and price movement of the securities traded in that market. In broad terms, rising prices indicate bullish market sentiment, while falling prices indicate bearish market sentiment.

Amgen Long-Term Chart (2000 – 2020)

Chart showing the share price performance of Amgen Inc. (AMGN)

The stock posted historic gains in the 1980s and 1990s, topping out above $80 in the third quarter of 2000. It sold off into the low $30s during the bear market and turned higher into 2005, mounting the prior high by five points before turning tail in a failed breakout. Selling pressure escalated into the first quarter of 2008, dropping the stock within nine points of the prior low. It held that level through the economic collapse and eased into a four-year trading range between the $40s and $60s.

A breakout into 2012 attracted a steady bid, reaching the 2005 high in late 2012, ahead of a 2013 rally that posted impressive returns into the 2015 high at $181.81. Drug pricing scandals then severely damaged pharma and biotech sector sentiment, yielding sideways action, followed by a shallow 2017 uptick that added just 30 points into the 2018 high. The stock mounted that level in the third quarter of 2019, but elevated volatility since that time has translated into almost zero returns, excluding dividends.

A rising channel has contained Amgen price action since 2015, with support now located near $190 and the 50-month exponential moving average (EMA). Channel resistance above $250 has come into play repeatedly since the end of 2019, with three major reversals in this price zone. Sellers have now taken firm control of the ticker tape, exposing downside into channel support. The monthly stochastic oscillator supports this bearish outlook, crossing into a long-term sell cycle at the start of September.

A price channel appears on a chart when a security's price becomes bounded between two parallel lines. Depending on the direction of the trend, the channel may be termed horizontal, ascending, or descending. Price channels are often used by traders who practice the art of technical analysis to gauge the momentum and direction of a security's price action and to identify trading channels.

The Bottom Line

Amgen reported strong third quarter earnings and revenue on Wednesday evening but warned that fourth quarter profits would not meet prior expectations. Taken together with long-term technical sell signals, the stock could drop into the $190s by the end of 2020.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.