The American pharmaceutical company headquartered in Indianapolis, Indiana, Eli Lilly and Co (NYSE: LLY) seems to be gearing up for a surge as per its latest charts.
Bullish Indications
#1 Ascending triangle pattern Breakout: The daily chart shows that the stock has currently broken out of an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked on the daily chart in purple color lines. A breakout from an ascending triangle pattern typically indicates bullishness. The base of the triangle generally acts as a good support level after the breakout.
Daily Chart – LLY
#2 Trading above MAs: The price is currently above both the short-term moving average of 50-day SMA as well as the longer-term moving average of 200-day SMA. This implies a possible bullish bias for the stock.
#3 MACD above Signal Line: The daily chart shows that the MACD line (blue color) has crossed above the signal line (orange color). This is a possible bullish setup.
#4 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart. This indicates possible bullishness.
#5 Bullish ADX and DI: The ADX line has started to move up from below –DI and +DI lines. The +DI line is also currently above –DI line. This indicates possible bullishness.
#6 Flag Pattern Breakout: The weekly chart shows that the stock was in an uptrend after which it started consolidating and was in a narrow range. This is a classic flag pattern and is marked in the chart in pink color. Currently, the stock has broken out of the flag. A Flag is a continuation pattern. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend (uptrend in this case). The stock is also trading above its 50-week as well as 200-week SMA. All these are possible bullish indications.
Weekly Chart – LLY
#7 Bullish MACD: In the weekly chart as well, the MACD line is above the MACD signal line, indicating possible bullishness.
#8 Bullish Stoch: The %K line of the stochastic is above the %D line in the weekly chart and is moving up from oversold levels, indicating bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for LLY is if it corrects to the breakout level of the ascending triangle pattern, at around $212.00. However, you can purchase half the intended quantity of shares of LLY above $227.40.
TP: Our target prices are $235 and $245 in the next 3-6 months.
SL: To limit risk, place a stop loss at $200.00 (for entry near $212) and $222.50 (for entry near $227.40). Note that this stop loss is on a closing basis.
Our target potential upside is nearly 3% to 16% in the next 3-6 months.
- Entry near $212: For a risk of $12.00, the target rewards are $23.00 and $33.00. This is a nearly 1:2 and 1:3 risk-reward trade.
- Entry near $227.40: For a risk of $4.90, the target rewards are $7.60 and $17.60. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 4x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the ascending triangle pattern. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in its sector.
Happy Trading!
— Tara