EpiPen Producer Nears Historically Bearish Trendline

However, call buyers are active ahead of earnings next week

The shares of Mylan NV (NASDAQ:MYL) are down 1% at $31.26 in afternoon trading. While the stock has surged since its late-December lows, MYL has encroached on a trendline that's had historically bearish implications, suggesting the security could be headed for its next leg lower. What's more, Mylan earnings are just around the corner.

MYL is trading within one standard deviation of its 120-day moving average, after a lengthy stretch below this trendline. According to Schaeffer's Senior Quantitative Analyst Rocky White, in the four times the stock has run up to this moving average in the past two years, it averaged a 10-day loss of 6.6%, with 100% of the returns negative. Widening the time frame out to 21 days (one month) yields an average post-signal loss of 12.6%. Another move of this magnitude would put Mylan stock just above $27 -- back near its 2018 lows.

MYL has been in a channel of lower highs and lows since its January 2018 peak near $48. Analysts have largely disregarded this long-term sell-off, however, with nine of the 14 brokerage firms following MYL issuing "buy" or "strong buy" recommendations. The remaining five analysts maintain lukewarm "hold" ratings, with not a "sell" in sight. Furthermore, the average 12-month price target of $41.67 sits at a 34% premium to current levels. A negative earnings reaction next week -- Mylan reports on Tuesday, Feb. 26 -- could put the shares at risk for downgrades or price-target cuts.

Switching gears, options traders have grown increasingly optimistic on the pharma concern ahead of earnings. This is per the stock's extremely elevated 10-day call/put volume ratio of 17.98 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks in the 97th annual percentile. It other words, MYL calls have been purchased over puts at a faster-than-usual clip in the past two weeks.

Echoing this, MYL's Schaeffer's put/call open interest ratio (SOIR) of 0.47 lands in the 28th percentile of its annual range, suggesting near-term options traders are more call-biased than usual right now. Should the stock suffer another drop in the face of its 120-day moving average, an exodus of option bulls could pressure the shares.