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Technical Analysis: Eli Lilly

Eli Lilly, headquartered in Indianapolis, emerged as one of the market's strongest performers in 2023 and 2024. In less than 18 months, the stock surged +200% (roughly +4.3% per month) from March 2023 through mid-July, before losing a quarter of its value.


So, what happened? This commentary will examine the technical supply and demand factors behind recent movements.


Before examining its stock movements, it's important to note that this analysis reflects solely on LLY as a security, not on Eli Lilly as a company. We are very lucky to have Lilly located here in Indianapolis. Our focus here is purely on understanding the technical factors driving recent price action.


Analysis Part 1: March 2023 – July 2024


First, here is a chart of Eli Lilly (LLY) from March 1st, 2023, through July 15th.



Points:

1. The +200% price surge reflects a parabolic rise driven by investor euphoria. As new buyers take a position in the security, they have high expectations, such as continued momentum and outsized returns.


2. I have drawn a line of “support” on the chart. The support trendline connects sequential price lows, forming an upward slope that serves as a key technical reference point for the subsequent analysis.


3. The MoneyFlow Index (discussed later) is rising with the stock, confirming the price movement.


Analysis Part 2: A Decline and Rally


The following chart shows Eli Lilly (LLY), with our discussion points beginning on July 15th, through October 29th.



Points:

1. Lilly stock declined -18.7% from the July 15th high, but found support at our established trendline, which coincidentally closely tracks the 200-day moving average - a key technical indicator of long-term trend.


2. After finding support, the subsequent rally to previous highs, followed by two weeks of sideways movement, created a clear resistance level where selling pressure outweighed buyer demand. Stock owners will sell at this level; after wishing they would have sold their shares the last time they saw that price.


3. An analysis of the MoneyFlow Index (a volume indicator measuring “smart money”) showed a critical divergence: while price retested its July 15th peak, the MoneyFlow Index registered significantly lower levels. This negative divergence - with the decline occurring on heavy volume and the rally on light volume - suggested weakening accumulation.


4. The stock's subsequent two-month consolidation marked a dramatic shift from the sustained uptrend investors had grown accustomed to over the previous 18 months.


Analysis Part 3: Current


The following chart shows extends our previous chart of Eli Lilly (LLY) to present day (11/18/2024):



Points:

1. LLY's October 30th gap down through both the support trendline and 200-day moving average signaled a bearish change in long-term trend reversal. This decisive break, triggered by missed earnings and revised guidance, reflected aggressive selling pressure as investors headed for the fire exit all at once.


2. The stock's subsequent rally back to the former support level - now acting as resistance - confirmed the technical breakdown. The past three sessions have intensified the bearish momentum with consecutive declines of -3%, -5%, and -2.5%.


3. The MoneyFlow Index confirmed conviction in the downward move by also declining. 


Analysis Part 4: Making Predictions


As the great Yogi Berra once said:

“It’s tough to make predictions, especially about the future.”

With that caveat, here are some technical observations and forecasts:


1. Expect Continued High Volatility. The Canterbury Volatility Index (CVI) shows increasing price instability in LLY. Rising volatility is a bearish indicator. Expect significant price swings in both directions as the stock seeks to find its bearings.


2. Technical Forecasts. Using technical patterns, analysts will often attempt to forecast price movements. While chart patterns can be useful for technical analysis, they don’t provide guarantees. They give you an idea of what is possible:


     Double Top Formation (Bearish Pattern): The recent twin peaks ($962) and intervening low ($748) suggest a potential price target of $534, measured by projecting the peak-to-neckline distance below the breakdown point (a decline of $214 below the neckline of $748).


     Fibonacci Retracements: In technical analysis, Fibonacci retracements are used to provide significance to areas of support or resistance. Using the March 2023 to recent peak range, the current price of LLY sits at a 38% retracement level (a potential area of support). If breached, the next significant Fibonacci support level arrives at the 50% retracement ($640). That is a level of support that was established back in January.


Closing Thoughts

Obviously, the Double Top formation price target and Fibonacci support levels each suggest significantly different possibilities for LLY stock. The bottom line is that LLY has entered a period of heightened volatility. It does not know where it wants to be, and it will likely fluctuate significantly in either direction.


Eli Lilly remains a cornerstone of both Indianapolis and the U.S. economy. However, stock prices ultimately reflect supply and demand dynamics rather than corporate fundamentals. Recent price action demonstrates how investor psychology can drive significant fluctuations, particularly when momentum shifts and new buyers question their assumptions.


This analysis aims to illuminate the technical factors and market psychology behind LLY's recent movements, especially for those wondering why the stock's remarkable uptrend has paused.


Disclaimer: Every effort was used to provide accurate data and mathematical calculations to provide what we believe to be accurate results. Canterbury Investment Management, LLC and its principal owners, make no guarantee of completeness or accuracy of data or calculations as well as conclusions of any statistical data or information contained in the charts illustrated on this page. Past results or performance is in no way a guarantee of future results. 

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