Eli Lilly (LLY) - Strong Outperformance
Eli Lilly (LLY) is up 52%, far ahead of the XLV health care ETF, which is up 22.5% over the same period. LLY sits near the top of the pharmaceutical sector and the S&P. The top three names are Merck (MRK) in the lead, then Eli Lilly (LLY) and Johnson & Johnson (JNJ). LLY made a strong move up this morning from yesterday's close, helped by bullish analyst news.
Chart Structure and Key Levels
The high came near 1292.65. From there price fell into a downward sloping channel marked by two white lines.
Upside points to watch if the move up continues:
- 1188 - an old relative high in the upper part of the channel.
- 1228 - another high before a gap up, with later lows before a breakdown.
- Around 1110 - pre-earnings lows that formed a double bottom with recent lows.
- 1094 - lows after another gap.
These price extremes, spots where price stopped and started, and gap areas often come back into focus later, so they are worth tracking.
Moving Averages and Momentum
The 21-day exponential moving average (one month of trading days) and the 63-day EMA (one quarter) are coming together at 1155 to 1163. This zone should act as another resistance area on the way up. Today's move could bring price close to that 63-day EMA at the open.
RSI, the momentum measure, showed a series of falling peaks, and the drop got steeper recently. Yesterday's move appears to be breaking through that. Look for RSI to cross back above the 50 midline, especially if price pushes past the resistance levels named above.
Volume Profile
There is a smaller pocket of trading activity between 1155 and 1190, and activity thins out above 1190. To the downside, the biggest node runs from 1010 to 1080, with the point of control, the heaviest traded area, near 1047.
Example Trade: Short Put Vertical
Given the bullish analyst news, the next monthly expiration falls this Friday, only a few days out. The expected move (orange box) is about plus or minus 2.9%, giving a low near 1120.
A short-term short put vertical fits a neutral-to-bullish view: sell one September 18th 1120 put and buy one 1110 put for a 275 credit, with 3 days to expiration.
- Max profit: 275 (the credit received).
- Max loss: 725.
- Reward-to-risk: roughly 1:3.
- Expected move: about plus or minus 2.9%.
- Break even: about 3.2% to the downside, at 1117.25.
The trade needs a bigger-than-expected move to lose. Selling a put vertical is a soft target: price only has to stay above the short strike to keep the credit. A drop below the break even of 1117.25 is where the position could take a loss.
