Recently, shares of Pfizer (NYSE:PFE) dropped 20% in a straight line following the company’s latest earnings report. As a result, PFE stock has reached extreme oversold readings that — in combination with other factors — could lead to a pop in the stock.
I often share trade ideas where a steep rally or selloff leads to parabolic rally/selling. I find such moves give traders high probability trades in the other direction for quick profits. However, when such a move also coincides with a more structural factor, then a trade idea may even turn into an intermediate or longer-term investment.
Before looking at the Pfizer stock charts let me point out that the current low-yielding global environment in bonds (government and corporate) is pushing more investors into riskier assets and out in duration.
However, one part of the equity market that still offers good reward-to-risk is quality stocks that pay dividends, such as PFE stock. The recent plunge in PFE stock now has it sporting a 4% dividend yield, which given the aforementioned yield environment, looks increasingly attractive. And after speaking to other investors, I am not alone in this view.
With Pfizer stock’s dividend yield in mind, let us look at some charts.
PFE Stock Charts
We start off with the multi-year weekly chart where we see that the selling in Pfizer stock, which started in November 2018, reached extremes from a momentum perspective by mid August 2019. At the bottom of the chart, I added the MACD and RSI momentum/trend oscillators, which are deeply oversold.
Also note that while PFE stock did break out of its multi-year, up-trending channel, it has reached important horizontal support around the mid $30’s, where it could begin to stabilize and bounce over time.
On the daily chart, Pfizer stock is also deeply oversold and we see more clearly the horizontal support area it has reached. While the stock could see some more downside given the momentum trends, it looks to me like the recent rate of change is not sustainable and will begin to slow and ultimately lead to a meaningful bounce, if not a trend reversal.
Active investors and traders could look to buy PFE stock around the mid $30’s with a first upside target at $37 and using a stop loss at $33.50.
My clients and I prefer to structure a trade in the highest probability manner, which, in this case, means selling a very specific options spread in PFE stock.
In order to teach this special options trade I am holding a webinar for InvestorPlace readers on Wednesday Aug. 21. Register here.
Join Serge in an exclusive live webinar: The steady income options strategy. Register HERE.