Short term
Trade view / 26 May 2014 at 8:33 GMT

Bayer AG gearing up for another rally

Trader / TheSteadyTrader.com
United States
Instrument: BAYN:xetr
Price target:
Market price:
Background 

German healthcare and pharmaceuticals giant Bayer AG (BAYN:xetr) continues to find a top spot on my European stock watch-list after the recent merger and acquisition activity in the sector, which has also left a notably positive tone on the company's stock chart. Recall that Bayer recently sold a division to Boston Scientific for USD 415 million and shortly before that bought the consumer unit from Merck for USD 14 billion. 

Management and risk description

Looking  Bayer's multi-year chart stretching back to 2011, we note that the broader up-trending channel (blue parallels) remains firmly in place. A little closer sniff on the chart reveals that the stock has held its 200-day simple moving average (red line) like a champ since 2012, which still coincides with the lower end of the up-trending channel. Also note that although the stock is trading in the upper part of this channel, it still has room on the upside until it bumps into better resistance.

Parameters

Entry: buy the stock on a daily close above EUR 104.40.

Target: EUR 108.50.

Stop: EUR 102.50.

Timeframe: 1-3 weeks.

Bayer AG
Source: Saxo Bank

On the closer-up chart note that the stock in late April broke out of what we could consider a bull flag pattern, which has been in development since January (long blue parallels). Since the breakout the stock has continued to act constructively and formed two further  mini bull flat patterns. The most recent such bullish consolidation pattern is taking place right at/below the stock's all-time highs from January. Thus, a break out of this pattern would also result in a new all-time high in the stock and likely follow-through with more buying on momentum.

Bayer AG
Source: Saxo Bank

-- Edited by Clare MacCarthy

Disclaimer:
Non-independent investment research
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