FRX Forest Labs March 9

Pharmaceuticals are looking a little brighter as M&A activity seems to be focused on this nick of the woods. We had WYE and now SGP and perhaps more to come. Obama is lifting the ban on stem cell research and so on, all good stuff but the reality is that all the pharma companies are in trouble due to patent expiries, lack of pipeline products etc. etc. The beneficiaries are, of course, the generic producers. The product has already been “sold”, it’s efficacity is not in doubt, and governments love the lower prices. Forest Labs is one of the generics.

FRX arithmatic march 9

Here is the chart since 1982.  The drop from the high near $80 is a-b-c, potentially a completed correction. Furthermore with a low at $18 it certainly has done the obligatory 62% and then some. The P/E is around 6 to 7. As these are big moves it pays to look at this a-b-c on a log-scale chart.

FRX log march 9

Note that c is already larger than a so this stock could turn at any moment! Looking at the chart in detail;

FRX march 9

Judging by the RSI and OBV one more low below the $18.50 level is entirely possible but not necessary. To see what can happen look at CI Cigna some 6 years ago. This is best traded as option IMO.