Short Term Play Watchlist: Bristol Myers Squibb (BMY)
August 9, 2008 – 12:56 pmWe are going to add Bristol Myers (BMY) to our watch list for next week. I was picking through my watch list and passed by this very intriguing graph:
What I see: Alright, here we have a 5 year chart of Bristol Myers. The orange line I drew shows the support line at $20.05. There is a uniform descending channel formation that begins right after the huge red candlestick formation at the beginning of January ‘08. Notice how the price of the stock bounced off of the support line twice since January ‘08. Now on to the next graph…..
Below, we see a formation of a head and shoulders bottom. It is not a 100% definitive one but it is definitely clear enough to draw and evaluate. The green line here shows the head and shoulder pattern and the blue line shows the upper resistance line. After a bit of extrapolation, I view this line to extend out to about $22.59. Another interesting thing to note is another upper resistance line formation that forms at the two ends of the “head” in our head and shoulders formation, as shown in the third picture. On May 30th ‘08, we see the high hit $23 dollars even and on July 17th ‘08, we see the daily high hit 22.93 and bounce right back down. On May 1st of ‘08 we see the chart breaking through this resistance line but ends up breaking right back down six days later.
This is how I would play this graph. Looking at the chart, we can see two resistance lines as I stated earlier, one forming at $22.59 from the descending trend line (blue line on the chart) and another forming at both ends of the head (not drawn). With this, I can set the head resistance at 22.93, which equated to a 34 cent difference in my two resistance lines. Next week we can use one of two strategies. First, but the most doubtful of the two, we can see if the graph trends lower to the support line at $20.05, which is the gold line on the graph. If the graph has a healthy move in either direction (2-3 percent) on higher than average volume, we can set a call if the price trends higher or a put if it trends lower. We will then set a stop at the support line price of $20.05. The second strategy we can use, which is sure to happen, is play the upper resistance line. From the way the chart has look in the 5 year graph, I could safely bet that Bristol Myers will be trending lower sometime soon, but you never know. Once the chart hits the “head” resistance line of $22.93, we can set a stop or put based on the direction of the movement, with another stop at the resistance line price. I would most likely guess that the put option will be used. Thanks for reading.
-Justin Moon, Senior writer for Marketchasers.com