Mylan NV Could Be Closer to a Breakout Than Most Traders Realize

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If it seems like Mylan NV (NASDAQ: MYL ) has gotten far more media attention of late than it usually does - almost all of it bullish - you're not crazy. It has. The recent investor-day event helped the company toot its own horn to be sure, still, MYL stock has been strangely stuck in neutral in recent days.

It's a curious situation that defies the news Mylan has been dishing out that's been turning some heads.

Maybe it's just a technical, chart-based issue. Maybe investors are too distracted by everything else going on with the rest of the market right now. One thing is for sure though, and that is, if Mylan stock can get over whatever technical hurdle is standing in its way right now and develop some momentum, there's not much that should hold back a rally.

Lots to Like

Leerink analyst Ami Fadia was absolutely right when she said last week "Mylan's biosimilars/complex products pipeline is shaping up to be one of the strongest in the industry." The encouraging words came packaged with an upgrade of MYL stock to an outperform rating. Yet, Fadia's comments may have understated the potential of Mylan's pipeline.

In the queue are a biosimilar versions of Neulasta and Humira. The former is an immune system booster for cancer patients, made by Amgen, Inc. (NASDAQ: AMGN ). Humira, is a gastrointestinal drug that maker AbbVie Inc (NYSE: ABBV ) believes it can sell more than $20 billion worth by 2020 . Compare that to the more than a billion dollars' worth of Neulasta that Amgen sold in the final quarter of 2017 alone. Both biosimilars should launch before the end of this year.

But, it's not just biosimilars that could add major incremental revenue to the mix, nor is it the four other in-house drugs nearing their launch date . Mylan is also forming selling partnerships with other drugmakers.

Case in point: Earlier this month the company acquired the rights to sell a once-monthly multiple sclerosis treatment developed by Israel's Mapi Pharma. Late last month, Mylan and Asian pharmaceutical company Biocon won EU approval for their jointly developed diabetes treatment Semglee.

Seems Undervalued at 7x

Even if not all of these drugs become blockbusters, revenue growth is clearly in the cards. So why, pray tell, has the market been so unwilling to give this company any kind of credit by valuing it at more than seven (yes, only seven) times its forward-looking earnings?

Two theories stand out above all others, though you won't find either described in any investing "how to" books.

The first is that investors are so convinced the company can't overcome all of its woes, they won't able to recognize it when Mylan finally does manage to get itself back on track. For some observers, Mylan CEO Heather Bresch's appearance at a Senate hearing about the outrageous price increases for its EpiPen was the last straw; MYL stock is still priced roughly where it was then. Perception is everything.

The other theory posits that it's in some traders' best interest to hold this stock down, so much so they'll find a way to keep a lid on it as long as possible.

Who'd care about seeing MYL stock not rally? Shorts traders, who are holding the 24.2 million short shares right now, are one group betting that MYL stock will move lower rather than higher. If Mylan stock starts to rise, those bears could be in serious trouble; there is no limit to the potential losses on a short trade.

Neither theory is verifiable. Regardless, the validity of either or both theories is irrelevant. Something is holding MYL stock back, and until that something breaks, nobody can afford to hold their breath. But, what a rocket ride it could be once traders are able to shrug off whatever it is between their ears that's keeping Mylan shares anchored! It just needs the right nudge. The fundamental backdrop is already in place.

Waiting on MYL Stock

As for what to look for going forward, it's not terribly tough: MYL stock needs to break out of the consolidation funk they're now in. Thing is, we may be closer to such a move than many traders realize.

The daily chart of MYL stock below tells the tale. It's been getting squeezed into the tip of a converging wedge (framed by red, dashed lines) since the latter part of last year. You can also see the stock is tangled up with all of its key moving average lines.

Click to Enlarge

At first glance it looks problematic, suggesting shares are trapped. The waning volume further suggests a growing disinterest in Mylan, which would only exacerbate the stagnation issue.

That's not how it works, though. Periods of low volatility are followed by periods of high volatility, and vice versa. This stagnation also has all the hallmarks of the bulls and the bears sizing each other up. Once one side or the other flinches, look for fireworks again.

Just for the record though, the undertow favors the bulls.

Zoom out to a weekly chart (below) of Mylan for a moment. In this time frame you can see we've already made a higher high and a higher low. We're also above the pivotal 200-day moving average line (pink), and even found support there a couple of times this year. More than anything though, we've been well above the falling resistance line (red, dashed) that had proven problematic since late 2015.

Click to Enlarge

The last thing we need to see in order to trigger the brewing breakout is a move above the 100-day moving average line at $41.50. That move would by default include a move above the upper edge of the converging wedge pattern we plotted on the daily chart. After that, a move to $50 - if not more - is within reach.

The hardest part is waiting.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter , at @jbrumley.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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