While still roughly 19% higher year to date, global pharmaceutical giant Pfizer (NYSE: PFE), has been in a multi-month consolidation phase and is about 5% off its April highs. But the stock is well supported by moving averages and trendlines in various time frames, and this week, it rallied nicely past a multi-month resistance zone.
I think PFE could soon be revisiting its April highs. With earnings less than two weeks away (scheduled for Tuesday, Oct. 29) and the stock having found new upside momentum, this looks like a juicy trading setup.
Since its April top at $31.15, PFE has been a relative underperformer versus the Health Care Select Sector SPDR (NYSE: XLV).
It is important to note that, as of Sept. 29, PFE comprised 9.7% of this ETF, with only Johnson & Johnson (NYSE: JNJ) comprising a bigger part at 12.5%. I say this because, assuming PFE can muster additional strength in the next two weeks, it should also push XLV higher. Depending on how much strength PFE shows in coming weeks, it could also play catch-up with XLV, closing the gap between the two.
The weekly chart of PFE below spanning back to 2005 paints a bullish picture. I’d first like to point out the symmetry of the chart, which directly reflects how well the stock respects its longer-term trendlines and technical formations.
After bottoming in early 2009, PFE traded higher with the broader market, but in a choppy, upsloping, symmetrical formation (between the blue lines). After trading back and forth near the upper end of this formation for the first seven months of 2012, it finally made a big push higher, which accelerated the stock’s rally, and thus, steepened its slope.
PFE pushed past a long-term resistance line (red) in early 2013. I don’t often come across charts that have relevant resistance/support lines dating back more than a couple of years, but PFE’s former resistance/current support line dates back to 2005. Given this line’s long-standing nature, the stock’s break and consolidation above it this year are significant and bullish from a purely technical perspective.
On the daily chart below, this year’s consolidation above the long-term support line is marked by the two diagonal blue lines. Note how PFE has gyrated between the two lines, all the while supported by a rising 200-day simple moving average.
This week, the stock broke past several immediate and near-term horizontal resistance lines and now looks to have enough momentum to keep rising with a potential first target near its April highs.
Recommended Trade Setup:
— Buy PFE at the market price
— Set stop-loss at $28.80
— Set initial price target at $31.10 for a potential 5% gain in two weeks (exit this trade before the company’s Oct. 29 earnings announcement)
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Source: Profitable Trading