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Mylan N.V. Stock Is Headed Back Down to $40

Drugmaker Mylan N.V. (NASDAQ:MYL) has garnered quite a bit of bullish attention since the beginning of the month. MYL stock is up more than 4% so far in March, beating the benchmark S&P 500 Index’s gain of about 1.4%. However, MYL stock still doesn’t look like a buy. It looks increasingly like a near-term short.

So, why is MYL stock up in March? There are two factors underlying this rapid growth. First, Mylan reported better than expected earnings on March 1 and it announced a competitor to Allergan plc Ordinary Sharess (NYSE:AGN) Botox treatment. That said, there were flaws in the report, as revenue came up short of expectations.

Second, Morgan Stanley upgraded MYL stock to overweight from equal weight on March 6. The ratings firm also lifted its price target to $50 from $39 and raised its earnings estimates through 2020. This move initially appeared to be a very big deal for Mylan stock’s outlook, and the shares rallied sharply.

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But investor sentiment was already rather bullish heading in to both of these MYL news events. Thomson/First Call reports that 13 of the 20 analysts following MYL stock rate the shares a “buy” or better. There are no “sell” ratings to be found. The 12-month price target rests at $49.62, just shy of Morgan Stanley’s boosted target.

Additionally, options traders were betting big. The April put/call open interest ratio has fallen a touch since then. It is down to 0.35 from an early March reading of 0.38. In both cases, calls nearly triple puts in the back-month option series, indicating a wealth of bullish sentiment.

MYL stock
MYL stock


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But this optimism hasn’t really gotten MYL stock anywhere. Sure, the shares are up 4% since the beginning of March. But MYL’s rally has been held in check by one key trendline. It’s 50-day moving average.

The stock’s post-earnings rally was capped by this trendline. And while MYL closed above its 50-day after Morgan Stanley’s upgrade, the shares quickly retreated back below. This is often considered a bearish technical development. It means that Wall Street isn’t ready to push the price any higher just yet.

With a lack of will to move MYL stock any higher, the shares will be left to grind lower over the coming month. A breach of $42 will be the signal, as this area, which is now providing short-term support, previously acted as stiff resistance. Such a downside move could send MYL stock back to retest longer-term support near $40 or even its 200-day moving average.

In fact, MYL April option implieds are pricing in a potential move of about 5% for the shares heading into expiration. This places the upper bound at $44 and the lower bound at $40.

Two Trades for MYL Stock

Put Spread: Traders looking to bet on a technical reversal for MYL stock might want to consider an April $40/$42.50 bear put spread. At last check, this spread was offered at 97 cents, or $97-per-pair-of-contracts. Breakeven lies at $41.53, while a maximum profit of $1.53, or $153-per-pair-of-contracts — a potential 57% return — is possible if MYL stock closes at or below $40 when April options expire.

Put Sell: If you’re not willing to bet strictly bearish on MYL right now given the recent bullish sentiment and financial headlines, a put sell position would allow you to benefit from technical support without picking a direction. Given MYL’s implieds, an April $37.50 put sell should finish out of the money.

At last check, this put was bid at 28 cents, or $28-per-contract. The upside to this put sell strategy is that you keep the premium as long as MYL stock closes above $37.50 when April options expire. The downside is that should Mylan trade below $37.50 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $37.50-per-share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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