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Unusual Pattern of the Day: Eli Lilly (LLY)

Unusual Pattern of the Day: Eli Lilly (LLY)

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  • Pharmaceutical giant Eli Lilly (LLY) has been trending down for months. But despite some counter-rallies, a new chart pattern has emerged that suggests the long-term downtrend will continue.

    The trend is the death cross. It’s a simple indicator, with the 50-day moving average crossing under the 200-day moving average. With shares down about 18 percent in the past three months from their recent peak, the death cross suggests that a similar downtrend will continue in shares for some time.

    Operationally, the company has been faring flat in the past year, with a modest revenue decline but slight earnings growth. Even with the recent drop in shares the past few months, shares of Eli Lilly are still up 24 percent over the past year.

    Action to take: Based on the speed and severity of the stock drop, the April 2021 $120 puts look like a good bet for traders. The date allows for enough time for the trade to play out, and the $120 strike price is far away, but could potentially move in-the-money.

    Traders should look for mid-to-high double-digit returns on the trade. As with most options trades, if the trend starts to reverse and shares start to rally, also look to take profits before expiration as well.

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