Both drug stocks have pulled back from multi-year highs
Despite today's gains, the healthcare sector has been under pressure lately amid the recent Obamacare court ruling. If history is any guide though, there could be clear skies ahead for blue chip Merck & Co., Inc. (NYSE:MRK) and cardiovascular disease specialist Amarin Corporation (NASDAQ:AMRN), both of which are flashing the same bullish signal.
MRK Could Test Multi-Year Highs to Start 2019
Merck stock, at last check, was trading up 0.6% at $74.81, and is now within one standard deviation of its 80-day moving average after a lengthy period above it. Over the past three years, there have been six similar encounters with this trendline, after which MRK went on to average a one-month gain of 5.34% and was higher 83% of the time, per data from Schaeffer's Senior Quantitative Analyst Rocky White.
A move of similar proportions would put Merck stock back near $78.80, just a chip-shot from its 17-year high of $80.19 nabbed on Dec. 4. Overall, MRK boasts a 32% gain in 2018, carving out a channel of higher highs since an early April bottom near $53. During this stretch, and even as the broader stock market has swooned, the Dow name has rattled off nine straight monthly wins.
In the options pits, the security's Schaeffer's put/call open interest ratio (SOIR) comes in at 1.61, which ranks 1 percentage point from an annual high. In other words, options traders seem relatively pessimistic, with data showing a much higher-than-normal preference for near-term puts over calls. Should MRK once again bounce, an exodus of option bears could be beneficial.
AMRN Set to Snap Skid, Bounce Higher
Looking at Amarin, the stock is also within one standard deviation of its 80-day moving average. Over the past few years, there have been four similar dips to this moving average, after which AMRN went on to average a one-month gain of 11.93%, and was higher 75% of the time, per data from White.
Amarin stock, at last check, was up 3.5% at $15.41, on track to snap a four-day losing streak. A bounce of similar magnitude would have the drugmaker back above $17.20 to start 2019. AMRN has nearly tripled year-to-date, sparked by a late-September bull gap following upbeat data for its heart disease treatment.
What's more, traders looking to speculate on AMRN's near-term trajectory should consider options. The stock's Schaeffer's Volatility Index (SVI) of 92% is in just the 8th percentile of its annual range, suggesting short-term options are pricing in relatively low volatility expectations for the shares. In other words, Amarin near-term options are attractively priced at the moment.