Looking for a fix? Check out these drug companies — $LLY and $REGN (December 15, 2021)


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The stock that I am looking at here is Eli Lilly ( NYSE: LLY ). I was on IBD Live today and this was one of the stocks that they were talking about because it had a big pop here on a COVID treatment they’ve got. It’s a monoclonal antibody treatment, Regeneron has one of those too. I know vaccines are all the rage these days but there is such a thing as treatment of the symptoms. And so it looks like Lilly ( NYSE: LLY ), Regeneron are working on that stuff as well as all the other stuff you hear about, I am not going to talk about that now.

I am looking at Eli Lilly ( NYSE: LLY ), and this morning we were talking about it and I said, “You what? I am not real sure I would buy it here. You know it’s up almost 10 percent now, still in this box here with like a 270.00 or 271.00 resistance that started back here in August.” But now I am also looking at this, I still don’t think it’s an awesome time to buy, breakouts really haven’t really been working.

However, I look at this volume, and this is institutional volume. By the way, sorry, you just can’t buy a stock that’s up 10 percent, that’s just the way it goes. If this keeps screaming higher, it keeps running and running, well then, I guess I missed the trade and if you buy it now, then you make great money. I just look at what my prior experience has been on this type of trade.

When I have rushed in and bought a stock I tend to wind up regretting it. Maybe not the next day, maybe not the day after that, but at some point, the stock tends to do a round trip and then falls back down to where an ideal buy point would be, which would be right around this 250.00, 255.00 level.

But with that said, I want to look at the weekly chart. We see a little bit different deal here, in that this stock has really been kind of pinching for a while. Obviously, a nice uptrend. Obviously, golly gee, wouldn’t it have been nice to buy here at 90.00? Can’t do that, we don’t have a Wayback Machine.

So what I am looking at here, though, is a stock that, again, I think is still in demand by institutions and that could last for quite a while. If I go over to MarketSmith and I am looking at the number of funds that are buying this stock, it still is increasing, even though it’s an old company, everybody already knows what Eli Lilly ( NYSE: LLY ) is and so it’s not like this is an IPO.

But the thing is, it’s under a pretty nice accumulation. It’s got a good growth potential and they just reported that they expect 28 billion dollars in sales for 2021. So that’s a pretty big number, it beat analysts’ estimates, that’s what analysts do, they come out with estimates and then they get beat all the time or they are basically just proven to be wrong.

What’s happening here is, this stock is above 270.00, so technically this is a buy point. Okay, I get that, so let’s buy it. So we are buying the stock here above 270.00, let me take this away. So what’s the downside? The downside is, we’re buying it right here, I’m going to draw a box here, right from where we are buying it, and I will put it down here. We can do it here if we want.

The point is this, and this is really important, pay attention I’m giving you pearls here, when I draw a box like this with the upper left corner right at the entry point, know that by buying right now what we are expecting is, that the stock is going to flit around this upper left-hand corner and keep going. In other words, it is not going to fill the box at all, not ever. So do I feel confident that, yes, the stock is breaking out, but do I feel confident that it is never going to come back into the box? I don’t, I am not saying that it will but this would be my level of comfort.

And again, if I miss it I miss it. I would love to see the stock continue on up here, make me feel like an idiot for not buying it and then come back down and test that 270.00 mark, and even then not do anything. But the very next day if the stock starts to move back up, boom, then I buy the stock right around where I could have bought it right now, but I buy the stock after what looks like a successful test of the top of the breakout. Then from there, I can be in a position of power, I can ride this stock up through the twists and turns.

But the bottom line is this, you use this box method, it’s a method I invented and just named so there you go. Do that and you will find that you avoid making a lot of what turn out to be really bad trades.

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