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Trade of the Day: Eli Lilly (LLY)

Stock pickers must be nimble in this month


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Taking one quick look at seasonal trends now, which can temper such troubles as dollar strength, we see that April tends to be the strongest month of the year for stocks. Over the past 100 years, the Dow Jones Industrials Average has averaged a gain of 1.29% in April with positive returns 57% of the time, according to Bespoke Investment Group analysts. Over the last 50 years, the Dow has averaged a gain of 2.21% in April with positive returns 64% of the time. Finally, over the last 20 years, the Dow has averaged an April gain of 2.71%, which is nearly 100 basis points better than the next best month (November).

So April really stands out for the upside to be sure. But before you get too excited, you should also know that more recently (over the past three years) the month has actually started some pretty hellacious declines. The chart above shows the DJIA with weekly bars since October 2010. The trend is clearly up, but you will notice the index peaked in each of the Aprils. In each case the market had risen sharply to an overbought condition and then sold off when Q1 earnings reports did not rise enough to meet expectations.

We have been through the wars together over the past several years, so this confluence of positive long-term seasonality with the potential for negative short-term troubles is nothing new. It’s going to take some nimble behavior on the part of stock pickers.

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Now let’s take a look at today’s featured trade: Eli Lilly (NYSE:LLY).

My colleague Ken Trester at Maximum Options recommended an options trade in this stock earlier this week, and though our approach to picking trades differs, my analysis led me to the same conclusion—pharmaceuticals, particularly LLY, are roaring up.

Eli Lilly is one of the leading drug makers in the world, specializing in therapies treating everything from depression and obsessive compulsive disorder to diabetes and cattle disease. It pays a healthy 3.5% dividend, and all of its peers are advancing because investors anticipate a windfall as ObamaCare kicks in and more people are eligible to buy drugs with taxpayer subsidies.

Recommendation: Buy LLY for a $65.00 target.

InvestorPlace advisor Jon Markman operates the investment firm Markman Capital Insight. He also writes a daily swing trading newsletter, Trader’s Advantage which aims to capture profits of 15% to 40% and often as much at 100% to 200% in less than 90 days. 

Professional traders and hedge funds make huge profits off volatility.  Now, Jon’s service CounterPoint Options levels the playing field with the first service geared towards helping individual traders make steady, consistent profits with the VIX.  Get more information on Trader’s Advantage and CounterPoint Options today.

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