Play Allergan’s Upside with Less Risk

05/23/2011 11:45 am EST


Joe Donohue

Co-Founder, Desert Shores Capital LP

Technical and fundamental factors are likely to send shares surging even higher, and traders can take advantage of considerable upside potential while still limiting risk with a well-placed stop.

Allergan, Inc. (AGN) has been in a beautiful uptrend since mid-March, ever since it broke out of a perfect mini bull flag.  

Moving averages have been rising, and volume over this period has been increasing. On May 4, the stock broke out on heavy volume and consolidated for another two weeks until it broke out again on Wednesday (May 18) on more good volume.

Company Profile

Allergan, Inc., a multi-specialty health care company, discovers, develops, and commercializes specialty pharmaceutical, medical device, and over-the-counter products for the ophthalmic, neurological, medical aesthetics, medical dermatological, breast aesthetics, obesity intervention, urological, and other specialty markets worldwide. It operates in two segments: Specialty pharmaceuticals and medical devices.

The specialty pharmaceuticals segment offers a range of pharmaceutical products, including ophthalmic products for chronic dry eye, glaucoma therapy, ocular inflammation, infection, allergy, retinal diseases, and Botox.  

The medical devices segment offers a range of medical devices, such as breast implants for augmentation, revision, and reconstructive surgery; obesity intervention products, including the Lap-Band system and the Orbera Intragastric Balloon system; and facial aesthetics products.

M&A Rumors

AGN periodically finds itself in the rumor mill and has been for a while now. Sometimes where there’s smoke, there’s fire. Also, we are seeing mergers in the group and the iShares Nasdaq Biotechnology Index Fund (IBB) is making highs.

Bullish Chart Pattern

AGN is now flagging bullishly for what could be a set-up for another move higher. I am long at the $82 level, but will add to that position on a break above Wednesday’s high, which is around $85.74.

Click to Enlarge

My target is $95-$100 and you can put a stop around the $79-$80 level, which is right below the 50-day simple moving average.

By Joe Donohue, trader and blogger,

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