Eli Lilly Faces ‘Death Cross’ Selloff: This is the Stock's Next Target Price...

Eli Lilly Stock Analysis

Shares of Eli Lilly (LLY) and other pharmaceutical companies dropped significantly on Friday.  The selloff was triggered by the announcement that the Department of Health and Human Services announced that the company's Tradjenta was selected for Medicare drug price negotiations.

Tradjenta is an oral diabetes medicine that helps control blood sugar levels.

The Department of Health and Human Services also announced that popular diabetes drugs from Merck (MRK) and Novo Nordisk (NVO) were on the same list for price negotiations.

When a drug is selected for Medicare price negotiations under the Inflation Reduction Act, its manufacturer must work with CMS to set a "maximum fair price" based on costs, benefits, and market factors. If a company refuses, they face penalties.

Many new price takes effect starting in 2026. This lowers patient costs but may reduce pharmaceutical profits, affecting drug development. CMS monitors prices and may adjust them over time. The process targets high-cost, brand-name drugs without competition.

Shares of Eli Lilly were already in an intermediate-term decline before the announcement.  The stock has dropped 25% from its 2024 highs as investors have been unimpressed with Eli Lilly’s drug pipeline and management.

In October, LLY’s 50-day moving average turned bearish as the trendline fell into a declining pattern.  Such bearish patterns are consistent with stocks that will continue to trade lower for a minimum of 4-6 week.

The technical picture worsened for Eli Lilly stock in December as it completed a pattern known as a “Death Cross”.  This pattern is drawn when a stock’s 50-day moving average breaks below its 200-day moving average.

A Death Cross typically forecasts another 4-6 months of selling pressure for a stock.

To make matters worse for the short-term, Eli Lilly’s price is now preparing to move below the $725 level.

Shares found support at $725 in November during their initial decline.  The stock quickly rallied to its 50-day moving average at $825 – an impressive 16% rally – only to reverse lower again.

Now, a break below $725 will concern investors that had held the stock in November, increasing selling pressure again.

Eli Lilly shares will officially enter a technical bear market when the stock moves below $700.  This is the site of LLY shares’ 20-month moving average.

Investors should approach the stock with a high degree of caution as a price target of $600 will result from a continuation below $700.

Eli Lilly Stock Analysis

Recommended