Early this morning, Societe Generale cut GlaxoSmithKline (GSK) to "sell" from "hold." The brokerage blamed the downgrade on the "looming threat" of generics to GSK's respiratory drug Advair. SocGen believes the market is "underestimating" the chances for a generic competitor to Advair in the U.S. by 2011.
Technically, the stock is facing resistance at the $40 level -- a level that has provided a hurdle in the past. Along with this potential resistance is the possibility that the equity may slip back below its 20-month moving average. This trendline has acted as resistance in the past, and now that the shares are positioned north of this trendline, it could act as support. The problem is that this trendline is in a sharp descending pattern.
It isn't all bad news for GSK, the good news is that the equity should find some support from its 10-week moving average. With this trendline providing support, any potential drop from this morning's news could be limited.
Furthermore, SocGen placed a 2011 date on the potential competition. The fact that this is so far down the road gives the company a chance to prepare for any competition, and it gives GSK bulls a chance to take some profits before the shares could drop further.
Struggling Playboy outsources business ops
J. Crew earnings preview: A strong Q3 all buttoned up?
Twitter to make acquisitions, generate revenue in 2010
Add your comments