If you currently own Pfizer (PFE), now’s a good time to let it go…or switch to a bearish stance.
Analysts have been noting for a while now that Pfizer is looking overvalued considering its low growth prospects, and even after the big hit stocks took in mid-October, shares of PFE are still trading at more than two times book value ($12.08).
At the Oct. 16 close, the Profit Scanner powered by Recognia identified a bearish “head-and-shoulders” pattern forming in PFE’s chart that implies a 16% – 20% decline in the next 15 months.
On Thursday, PFE closed at $27.70, and ultimately, Profit Scanner expects a further drop to the $22 – $23.25 range in the long term. (In other words, Pfizer has four to five times more potential downside than is justified by the $1.04 annual dividend.)
The “head-and-shoulders” top is a bearish signal that is extremely popular in technical analysis because it is one of the most reliable patterns. The pattern tells us that PFE stock has reached the end of its distribution period and has broken down in a reversal to a new downtrend.
The above chart of PFE is a classic example of the pattern: three successive rallies in the price following a significant uptrend, with the highest high (head) in the middle, flanked by two lower highs (shoulders) at roughly the same level. Volume is highest as the price makes the first two rallies, then diminishes through the right shoulder. Finally, volume surges as the price closes below the neckline (drawn between the two lows) to confirm the reversal. And that’s just what Pfizer did here, on 36.7 million shares traded.
Support for PFE is $27.39, right around the Thursday low. Once support is penetrated lower, that’s a reliable signal of a further decline. Resistance, or the price “ceiling,” lies at $29.44, and for those considering a bearish trade on Pfizer, the Profit Scanner recommends a stop just under that level, on a close below $29.38.
Profit Scanner powered by Recognia can help traders of all levels uncover these signals to determine the best timing to buy. Or use Profit Scanner’s technical insight to validate your own trading ideas. See how easy this powerful tool is to help you uncover hidden opportunities in the market.
