My dad used to work for a pharmaceutical company. You may recall, in prior articles, I mentioned a small disdain for trading pharmaceutical companies. Well, this is true. The Vertex Pharmaceuticals (VRTX) of the world can really cause you some gray hair. Granted I did crush the last analysis on Vanda Pharmaceuticals (VNDA). If I do trade pharmaceuticals, I prefer the companies to be a little bigger, more stable, more on the health care side potentially.
Stock Pick
Eli Lily & Company (LLY) is one of those companies. Fun to trade. When it moves, it moves and when it doesn’t, still offers solid premium for option sales.
Let me quickly go over everything I like about this trade.
1. It was in a sideways consolidation for four months
2. It formed a Bollinger Band® Squeeze
3. The 100 simple moving average was propping it up as a support
4. It had a glorious unfilled gap back in February
5. Volume increased very nicely on 6/20/14
6. It closed above resistance
7. It formed a black candle on 6/19/14, then gapped above the open (and high) of that candle, trapping any short sellers
Trade Timing
That’s some solid confirmations of the trade. Now, if you’re asking the question, is it too late to get into this trade, the answer is yes. If you have to ask “am I too late?” you already are.
However, a few weeks from now, this could be a great set up. After the buyers of the breakout begin to take their profits, the retest will likely occur. I’ve drawn it out for you on the picture.
Now keep in mind, earnings is around the corner. My plan is for the stock to trade higher, rest, buyers begin to take some profit, and a smooth rotation is formed. Then “IF” if gaps up from earnings, it will be buyable again.
Targets
Bottom line, I’m looking for a retest and a bounce. How long could this take? Well, in my experience, with a trade like this, around a month or so. My targets on LLY are in the 70 range over the next few months.
Great opportunities ahead traders. Remember to create a plan and follow it! You rock! Have a great weekend. I’ll be missing you next week as I’ll be in Hawaii! ‘See you’ later!
