Key Takeaways
- Eli Lilly shares dropped more than 4% on Thursday as investors assessed the possible impact of a promising new weight-loss injection developed by Viking Therapeutics on the drugmaker’s own anti-obesity drug, Mounjaro.
- The stock’s technicals, including bearish divergence and a decisive close beneath a multi-month uptrend line and the 50-day moving average, point to a potential reversal.
- Eli Lilly shares may encounter support on the chart from prior price action at $790, $725, and $625.
- A bars pattern, extracting the trending move from April to July and applies it from Thursday’s low, projects an upside price target of around $1,060.
Eli Lilly (LLY) shares dropped more than 4% on Thursday, continuing a hasty retreat from their record high earlier this month, as investors assessed the possible impact of a promising new weight-loss injection developed by Viking Therapeutics (VKTX) on the drugmaker’s own weigh anti-obesity drug, Mounjaro. Last week, Eli Lilly shares tumbled after Swiss pharmaceutical firm Roche Holding AG said its new non-injectable weight-loss drug has shown encouraging early stage data.
Below, we take a closer look at Eli Lilly’s chart and point out important price levels to watch out for using technical analysis.
Chart Signals Potential Reversal
Eli Lilly shares have trended consistently higher since the 50-day moving average (MA) crossed above the 200-day MA in April last year to form a bullish golden cross signal. However, the stock’s technicals point to a potential reversal.
Firstly, as the drug maker’s stock climbed to a record high earlier this month, the relative strength index (RSI) made a comparatively lower peak to create a bearish divergence, indicating slowing buying momentum. Secondly, the price closed decisively below a multi-month uptrend line and the 50-day MA on Thursday, suggesting a breakdown of the longer-term trend.
Watch These Key Support Levels
Eli Lilly shares were down 0.1% at $820.00 in premarket trading about two hours before Friday’s opening bell. The stock has lost 15% of its value since hitting its all-time intraday high of $966.10 on July 15.
If Eli Lilly shares continue their decline, investors should monitor three key areas on the chart where they could encounter support.
The first level to watch sits around $790, an area where the stock may attract buying interest near a horizontal line connecting an extended period of consolidation between February and May within the longer-term uptrend.
A close below this area could see a fall to the $725 region, where the price would likely find support from the lower portion of the consolidation period discussed above, which also currently closely aligns with the rising 200-day MA.
Finally, a more significant drop opens the door to a retest of the $625 level, where buyers may be happy to scoop up shares near a trendline linking the October and November 2023 swing highs with the low of a minor pullback in January this year.
Bear Trap Still a Possibility
If the current breakdown turns out to be a bear trap, which lures investors into selling before the price makes a prompt recovery, we can speculate an upside target by using a bars pattern.
We do this by extracting the trending move from April to July and applying it from Thursday’s low, which predicts a price target of around $1,060.
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As of the date this article was written, the author does not own any of the above securities.