LLY's Market Direction- which path will we take?NYSE:LLY is a high performing company and my single largest holding. LLY has an incredible pipeline and a strong management team. The GLP1 weight loss medications have undeniable near term and long term potential, and there is strong optimism for the Alzheimer treatment in LLY's pipeline. We need to remain objective to the possibility that the market has priced this in and that the strong uptrend may be ready for a breather.
This overview will focus on potential for further upside and where we may have opportunities for additional accumulation. I am not taking additional profit at this time due to my long term active management of this position. For the sake of transparency, I manage 70% of this position using trends on the weekly chart and the remaining 30% using a daily time frame.
Looking at the weekly chart, we see sentiment peaking and a second bearish divergence in RSI in early October followed by a MACD cross over at the end of October. There is persistent symmetry in the primary uptrend as well as a series of secondary downtrends. We can make a strong argument for the formation in of a bear flag or diamond top following September. Noting the channel, key fib levels, and the volume weighted average prices anchored to the breakout from March low and the start of consolidation in May suggest supporting levels near 550, 535, and 487. A fib extension from September high to October low suggests overhead levels of 655 and 687, contingent on a weekly close above 615-625.
Note that trend has aligned to the fib time zone anchored to the December 2021 high. The next key time zone is 12/11/23.
Looking at the daily we can see a clear loss in momentum in both the short term derivative oscillator and the long term William's oscillator. Price has fallen through the VWAPs anchored to the October high and low. Next supporting VWAPs are anchored to September high and the August gap up. The latter is trending in line with the current rising wedge. These imply key supporting levels at 580 and 568.
For a potential continuation, I'd like to see a full candle close above the 612-616 range. This closely aligns to what we see in the weekly chart. Otherwise, a retest of 615 and that overhead resistance will lead me to look for a break below the rising wedge. This would suggest downside targets of 555 and 535. These align with key Fibonacci levels, the VWAP anchored to the May gap up, and a proportional measured range from the middle of the descending wedge.
Note possibility for trend to align with the fib time zone with the next key dates marked at 11/17, 12/5, and 12/19.
Finally, while recent trend opens the possibility of a near term reversal, the history of strong seasonal performance in the months of November and December should not be ignored. The pharmacy sector ETF NASDAQ:PPH shows December closing higher 75% of the time with an average gain of 1.4% over the past 20 years; the second highest performing month next to April. December has been the strongest performing month for LLY; closing higher 75% of the time with an average gain of 4.7%
