Historic Bear Signal Spells Bad News for Mylan Stock

The 80-day trendline could push the drug stock even lower

U.K.-based pharmaceutical concern Mylan NV (NASDAQ:MYL) is getting a broad-market boost today, up 2.3% at $18.76, set for its first positive close in a week. This positive price action may be short lived, however. While the stock enjoyed a brief surge at the end of July, it spent most of August in a downward slide, pressured lower by a ceiling at its 80-day moving average, and according to a study from Schaeffer's Senior Quanitative Analyst Rocky White, this trendline has had historically bearish implications.

Specifically, MYL just came within one standard deviation of its 80-day, and per White's data, a similar signal has flashed 13 times before during the last three years. What's more, the stock saw a negative one-month return 83% of the time, and averaged a 5.6% loss. At its current perch, a similar move would have MYL at $17.71 -- just atop its June lows.

Considering its 31.4% year-to-date deficit, an unusually large majority of the brokerage bunch like Mylan. The equity currently holds 10 "buy" or better ratings, six "holds," and not a single "sell." What's more, the consensus 12-month price target of $27.80 is at a hefty 48% premium to current levels, leaving MYL well overdue for a round of downgrades.

Traders on the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) are echoing this optimism. In the last 10 weeks, roughly 4.5 calls have been bought for every put. This ratio sits higher than 79% of all other reading from the past year, too, which indicates a much bigger appetite for bullish bets of late. Should MYL resume its slide, an unraveling of optimism in the options pits could put even more headwinds in place on the charts.