The market reaction among Pfizer Inc. (NYSE: PFE) shareholders is one of relief following word that a new set of U.S. Treasury rules could block Pfizer’s tax inversion buyout deal of Allergan plc (NYSE: AGN) earlier this week. In fact, the news has sent Pfizer’s share price to near its high point of 2016.
In a press release early Wednesday, Pfizer announced it was terminating the proposed combination with Allergan.
So, does the cancellation of the Allergan deal mark a positive technical inflection point in Pfizer’s chart? Here’s a look at what’s happened so far.
The recent surge has pushed Pfizer above two different resistance levels. Not only did it break above the $31 level that represented its February high, the stock also broke out above a downward-sloping resistance line that had been in place since the second peak of a double top at all-time highs back in November.
From here, Pfizer faces minor resistance at short-term December peaks at around $32.50 and $33.50, but the only major resistance above is in the $35-36 range.
Shares closed at the upper end of $32.90 on Wednesday.
In other words, the market’s bullish reaction to the Allergan deal getting nixed has drastically improved the technical outlook for Pfizer.
The news couldn’t have come at a better time either, with drug stocks facing a wave of political and media pressure regarding drug price gouging.
Even high-quality names like Pfizer have been sold off on headlines of potential misbehavior by Valeant Pharmaceuticals Intl Inc (NYSE: VRX), Mallinckrodt PLC (NYSE: MNK) and others. The possibility of a new wave of drug pricing legislation clearly has the market spooked, which makes Pfizer’s surge even more impressive.
In fact, a look at a longer-term chart shows that Pfizer’s breakout happened on impressive multi-year highs in volume, another strong sign that the breakout is legitimate.
Since this recent news-driven breakout seems like the real deal for Pfizer, the next big decision for traders may be when or if they should sell the stock. Resistance at $35.50 looks very strong, but Pfizer bulls can point to a downturn in 2014 that took the stock down from around $31 to near $26 before a fresh push to new all-time highs.
This past trading pattern could be a sign that $35.50 may not be the time to sell. The duration of the 2014 move was about eight months, nearly the same amount of time that has passed since the stock first touched the $35 level in late summer 2015.
If history repeats itself and Pfizer now mimics its 35% move off its 2014 bottom, the stock could soon push above $37 before its next consolidation period.
Disclosure: the author has no position in the stocks mentioned.
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