Another pharmaceutical stock that's showing breakout potential right now is Eli Lilly (LLY). Lilly broke out on Tuesday, pushing through previous resistance at $38.50, and the breakout was confirmed by yesterday's open above that level - even if much of yesterday's gains got given away by the close. So should you buy this breakout?
One major benefit to this setup in Lilly is the fact that $38.50 resistance is very well defined -- it's a level that's acted as a price ceiling the last three times shares have tested it, so the fact that shares held above that price yesterday indicates that the supply/demand equation for shares has shifted dramatically in favor of longs. Still, Lilly has moved enough off of that resistance level to warrant waiting.
Once broken, resistance levels act as support levels for shares. And it's not uncommon to see a stock break out only to retest newfound support as it consolidates; it's called a throwback. Throwbacks are good because they validate the strength of a price level we're watching, and provide traders with a second low-risk entry for shares. I'd be looking for Lilly to throwback to support -- otherwise, if shares make their way higher than yesterday's close, the upward trajectory looks likely to continue from here.Either way, I'd recommend keeping a protective stop at the 50-day moving average. Eli Lilly is one of Merrill Lynch's 10 Favorite Stocks for 2012.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV