Pfizer Stock Is Below Key Moving Averages - Where From Here?

The trade: Reduce holdings on Pfizer on strength to its 200-week simple moving average and its monthly risky level.
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Pfizer PFE reported that in a clinical trial its new breast-cancer therapy did not meet its milestone.

The result sent the shares gapping below the New York health-care giant's 200-day and 50-day simple moving averages.

Breast cancer is the leading cause of death worldwide, so any failed treatment will hurt the stock. For a detailed analysis refer to this story posted on TheStreet.com this morning.

Pfizer closed last week at $38.19, just below its monthly pivot for June. 

It ended May down 3% year to date and in correction territory 14% below its 52-week high of $44.56, set on July 3, 2019. 

The stock is in bull-market territory 37% above its March 23 low of $27.88.

Shares of the Dow industrials component - one of the Dogs of the Dow for 2020 - opened Monday at $35.50 and traded as low as $34.91 before noon. 

My theme for biotech stocks is that they will be vulnerable when a medical milestone is missed.

Its price-to-earnings multiple is 13.17 with a dividend yield of 3.98%, according to Macrotrends.

The Daily Chart for Pfizer

Daily Chart for Pfizer

Daily Chart for Pfizer

Courtesy of Refinitiv XENITH

The daily chart for Pfizer shows the confirmation of a death cross on August 7, 2019, when the 50-day simple moving average fell below the 200-day simple moving average. Such a move indicates that lower prices will follow.

The stock crisscrossed the 200-day SMA between Dec. 16 and Jan. 18 before slumping to its March 23 low of $27.88. 

Note that the death cross was not violated.

On the rebound the stock returned to its 200-day SMA and ended May just below its monthly pivot for June at $38.32, which is a warning.

The horizontal lines at the top of the chart are the quarterly and semiannual risky levels at $42.33 and $43.08, respectively.

The stock is below its 200-day SMA at $36.59.

The Weekly Chart for Pfizer

Weekly Chart for Pfizer

Weekly Chart for Pfizer

Courtesy of Refinitiv XENITH

The weekly chart for Pfizer ended last week positive but overbought, and that will end this week. 

The stock is below its five-week modified moving average of $36.51. 

The stock is also below its 200-week simple moving average, or reversion to the mean, at $37.11.

The 12x3x3 weekly slow stochastic reading is projected to slip to 80.57 this week but will remain above the overbought threshold at 80.

Trading Strategy: I do not show a value level at which to buy Pfizer on weakness. Reduce holdings on strength to its 200-week simple moving average at $37.11 and its monthly risky level at $38.32.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019, were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.

The second-quarter 2020 level was established based on the March 31 close.

The monthly level for June was established based upon the May 29 close.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the past 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.