Today, we enter a fresh month and a fresh quarter. That means it’s time to sniff out opportunities in the stock market that might offer great reward for little risk in the second quarter. As I look across the stock market, Pfizer Inc. (NYSE:PFE) looks like a great candidate to resume the year-to-date rally. Thus, to me, PFE stock offers additional upside than just its 3.8% dividend yield.
Broadly speaking, stocks had a strong Q1 2017. I think the rally can continue, but I also see sector leadership moving at least partially away from large-cap technology, and into other areas — such as pharmaceuticals and possibly the healthcare sector as a whole.
Remember: One of the main ways in which traders and investors do poorly in the market is by a) not respecting the underlying trends and b) once trends change, not reacting quickly enough (or at all).
With that in mind, let’s get some perspective before we dig into the trade. Let’s start with a multiyear ratio chart of the NYSEArca Pharmaceutical Index versus the S&P 500.
Here we see that drug stocks such as PFE have shown clear relative weakness (i.e., underperformed the broader stock market) since early 2009. Over the past few months, however, this ratio has begun to bounce after revisiting its 2009 lows at the blue horizontal bar on the chart.
To be clear, the relative strength bounce from the past couple of months doesn’t yet confirm a change of trend. But given where the bounce is occurring, it’s worthy of respect for the time being.
PFE Stock Charts
As we move on to the multiyear weekly chart, we see that Pfizer’s rally out of the 2009 lows came to a halt in June 2016, just marginally above the 61.8% Fibonacci retracement line of the entire selloff from 1999 down into the 2009 lows.
However, the rally pause since last summer has kept PFE stock above its multiyear support line (black), as well as above its 200-week simple moving average (red).
Translation: The uptrend remains, at least in this time frame, and a break above the June 2016 highs around the $37 mark remains very much in the cards.
On the daily chart, we see that PFE stock in February broke back above its 200-day simple moving average (red) and has been consolidating above there in a well-defined sideways pattern ever since.
Some technical analysts may also refer to this pattern as a bull flag formation, which as the name indicates, tends to have bullish implications for a stock.
If and when Pfizer stock can clear above $34.75 on a daily closing basis, it may be ready to start climbing back toward $37. Ultimately, I could see PFE getting into the low to mid-$40s.
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