Biogen Inc. (BIIB) kicked off earnings season for the biotech sector on Tuesday morning, beating fourth quarter profit and revenue estimates by wide margins while raising fiscal year 2019 earnings per share (EPS) above consensus. The bullish news triggered a minor uptick that reversed at range resistance in place since an October 2018 breakdown, but thin pre-market volume may not reflect buying and selling power after the opening bell.

Biotech stocks have struggled since 2015 when Valeant Pharmaceuticals and Turing Pharmaceuticals provoked nationwide outrage and price gouging charges that eventually lead to Martin Shkreli's imprisonment and Valeant's rebranding as Bausch Health Companies Inc. (BHC). The fraudulent activities incited a demand for pricing reforms that have attracted bipartisan support, ensuring pressure on industry profits well into the new decade.

BIIB Monthly Chart (1991 – 2019)

Monthly technical chart showing the performance of Biogen Inc. (BIIB)

Biogen came public just above $3.00 in October 1991 and entered an immediate downtrend that posted an all-time low at 35 cents in December 1994. It turned higher in 1995 and broke out above the IPO opening print one year later, entering an uptrend that attracted little buying power into 1999. The stock then took off in a powerful advance, adding more than 40 points into March 2000 when the internet bubble bull market ended. A secondary breakout later that year reached the upper $70s, marking the highest high for the next six years.  

The stock underperformed during the mid-decade bull market, grinding sideways in a rectangular pattern that gave way to a fresh advance in 2007. That uptick got sold aggressively, triggering a failed breakout, followed by a deep slide that held the 2003 and 2005 lows. This relative strength set the stage for a strong recovery wave that reinstated the breakout in 2011, while the subsequent uptrend posted the most prolific gains so far this century.

The rally posted an all-time high at $480 in March 2015 and turned tail, entering a decline that hit a two-year low at $223 after the 2016 Brexit referendum. Price action since that time has carved a shallow uptick into the .786 Fibonacci retracement level of the 2015 to 2016 sell-off, followed by a downturn that has generated the seventh test at the 50-month exponential moving average (EMA) since October 2015. The bounce into January 2019 has flipped the monthly stochastics oscillator into a buy cycle, confirming a bullish reversal at support.

BIIB Weekly Chart (2015 – 2019)

Weekly technical chart showing the performance of Biogen Inc. (BIIB)

The stock has underperformed broad benchmarks since topping out in 2015, stuck within a trading range that will enter its fourth year in July 2019. Limp price action in the past three and a half years looks nearly identical to the iShares Nasdaq Biotechnology Index Fund ETF (IBB), in which Biogen is the highest weighted component at 8.13%. This malaise is less obvious on the equal-weighted SPDR S&P Biotech ETF (XBI), highlighting the relative weakness of big-cap biotech stocks in recent years.

The rally into July 2018 finally filled the huge July 2015 gap above $327 and hit a Fibonacci retracement level that is notorious for printing lower highs within long-term topping patterns. This establishes a dangerous scenario that could finally generate a range breakdown through higher lows posted in 2017 and 2018. In turn, that would set off major sell signals that favor a test of the 2016 low that is situated more than 100 points under the most recent closing print.

However, the bullish stochastics crossover and accumulation that has held high in the 2018 trading range suggest that it will take months or longer for the downtrend to unfold, giving bulls another opportunity to mount the 2018 high and test 2015 resistance near $500. Of course, sentiment will need to improve greatly for that to happen, which seems unlikely with both political parties firmly aligned against skyrocketing drug prices.

The Bottom Line

Biogen stock is running in place after a bullish earnings report, indicating continued caution in a troubled industry vulnerable to government-mandated price controls.

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