×

Here's why you should buy beaten-up Allergan: Technician

Allergan is one of the S&P 500's worst-performing stocks, but one technical analyst contends it's worth buying.

The specialty pharmaceuticals company had seen a 40 percent decline from last July, but bounced back to $225 from a $200 low on Tuesday after beating first-quarter estimates. Given the rise, Evercore ISI technical analyst Rich Ross on Tuesday's "Trading Nation" gave three reasons for why there may be more than meets the eye at Allergan.

First, despite Allergan's downtrend since the beginning of this year, the company has actually kept above its 200-week moving average since 2009.


Second, Ross demonstrated that Allergan was actually on what he called a "measured move." This action saw the stock's highs sitting $70 above a head and shoulders line and its more recent lows settling at exactly the same amount of points below. Presumably, Allergan will once again rise $70 to around $270 based on the recent moves.


Finally, even with last week's lows, Allergan still managed to stay above its 200-week moving average. On Tuesday, the stock actually surged back up to $225 from almost $200 from last Friday, leaving Ross to believe that the company's long-term prospects looked attractive for buyers.


For those looking to buy Allergan, Ross cautions that investors should still make sure to have a clear stopping point in case the stock does dip further. He recommends a stopping point around the $191 to $195 mark, but otherwise remains optimistic about the specialty pharma company's long-term trends.

Read MoreTop investor Sass buys Allergan after epic plunge

Disclaimer

Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

Read more

Connect