Drug giant Pfizer (PFE) - Get Report was getting hammered lower on the heels of fourth-quarter earnings, with shares down 4% Tuesday. That's the the worst earnings reaction for Pfizer since way back in 2013.
Excluding one-time items, Pfizer posted fourth-quarter earnings of 55 cents a share, slightly underwhelming investors who were expecting profit to end up just above 57 cents.
That negative earnings reaction may not be as bad as it seems. In fact, it could actually be presenting a big buying opportunity for Pfizer bulls this winter.
To figure out what’s happening here in Pfizer, we’ll turn to the charts for a technical look.
The last time we took a technical look at Pfizer was back in October, when shares were positioning for around a 14% upside move on a breakout towards 2019’s highs at $44. Since then, shares made about half that distance before retreating into this week.
Tuesday's 4% selloff certainly isn’t helping Pfizer hit its target.
But in the context of the uptrend that this stock has established since bottoming out at the end of the summer, things still look quite constructive.
Pfizer’s selling Tuesday actually takes shares right to trendline support, the price level that’s acted as a sort of backstop for shares over the course of the last four months or so. From here, another successful test of trendline support looks like an optimal buying opportunity.
It’s also important to note that the uptrend in Pfizer hasn't been completely inviolate. Shares briefly dropped below that level for a session back in October - that means that an intraday or short-lived diversion below support doesn’t automatically break Pfizer’s uptrend.
The 50-day moving average has been acting like a solid proxy for trendline support stretching all the way back to mid-October. That also makes it a logical place to park a protective stop below. If Pfizer materially violates its 50-day (again, materially is the key word, as shares are testing that level in Tuesday’s session), then it doesn’t make sense to be long any more.
Trends are powerful investing tools but all trend lines do eventually break. That’s why it’s important to wait for a successful test of support before jumping into the Pfizer trade. If Pfizer can catch a bid and bounce from this trendline support level, then we’ve got a clear indication that buyers remain willing to step in to this trade.
Keep a close eye on how Pfizer trades in the next session or two - with earnings risk played out, a bounce on the dip looks like the perfect time to be a buyer.