LLY and ABBV have both pulled back to historically bullish trendlines
Drug stocks have struggled recently, with 43% of the names we track under the "Drugs" umbrella below their 80-day moving averages. This dismal price action has been echoed in the
SPDR S&P Pharmaceuticals ETF (XPH), with the shares down 12% from their late-September highs near $47 to trade at $41.39, and the overhead $43 mark containing all 2017 rally attempts. Two names in particular that have struggled of late are
Eli Lilly and Co (NYSE:LLY) and
AbbVie Inc (NYSE:ABBV). Both stocks are now trading near historically bullish trendlines, though, suggesting it could be time to roll the dice on a rebound -- especially given that biotechs are some of the
best stocks to own in the second quarter.
Eli Lilly Options Affordably Priced Ahead of Earnings
Since topping out at an annual high of $86.72 on April 5,
LLY stock has shed almost 6% to trade at $81.81 -- with most of these losses a result of a regulatory snub of the company's rheumatoid arthritis drug. Nevertheless, the stock found support at its rising 80-day moving average, and could continue to bounce if history is any guide. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, in the nine other times LLY has pulled back to this trendline in the last three years, the stock has gone on to average a 21-day gain of 2.5%, and has been positive 78% of the time.
Now appears to be an opportune time to bet on Eli Lilly and Co's near-term trajectory, too. Even with the drugmaker slated to report earnings ahead of next Tuesday's open, the stock's Schaeffer's Volatility Index (SVI) of 21% ranks in the 14th annual percentile -- meaning low volatility expectations are being priced into LLY stock's near-term options, a boon to premium buyers. Plus, LLY's Schaeffer's Volatility Scorecard (SVS) is perched at 80, indicating the stock has tended to make outsized moves over the past year, relative to what the options market has priced in.
AbbVie Could Take a Bigger Bounce Off Its 200-Day Trendline
ABBV stock hit a six-month peak of $66.79 in mid-March, but was last seen trading at $63.76 -- down 4.5%. Nevertheless, the shares are within one standard deviation of their 200-day moving average. In the six other times this signal has flashed in the past three years, ABBV has been higher two-thirds of the time in the subsequent 21-day trading period, averaging a gain of 5.5%.
Should the stock stage a repeat of history, an unwinding of skepticism could help keep the wind at AbbVie Inc's back. Of the 14 analysts covering the shares, nine maintain a tepid "hold" rating. Plus, while short interest plunged 11% in the most recent reporting period, it would still take more than a week to cover the remaining bearish bets, at ABBV's average daily pace of trading. A round of upgrades or continued short-covering could translate into tailwind for the shares. Separately, AbbVie is scheduled to report earnings ahead of next Thursday's open.