Dow component Pfizer Inc. (PFE) has emerged from a multi-year period of weak performance, breaking out above 16-year resistance in the mid-$30s while setting the stage for an assault on 1999's all-time high at $49.99. No specific catalyst is driving the upside, but a deep research pipeline, dozens of partnerships and an impressive roster of profitable drugs have finally encouraged long-term skeptics to enter new positions.
In addition, it's tough to place tariffs on American pharmaceuticals, given their global reach and life-saving applications. This safe haven status has translated into steady buying interest in recent months, lifting the broad-based SPDR S&P Pharmaceuticals ETF (XPH) to a two-year high. Given rising trade tensions, these tailwinds may continue well into the next decade, lifting Pfizer and its blue-chip peers into a series of all-time highs. (See also: Evaluating Pharmaceutical Companies.)
PFE Long-Term Chart (1994 – 2018)
The stock went ballistic in 1994, entering a vertical uptrend that continued into April 1999, just three months before the company issued its third stock split in four years. The rally stalled just under $50, yielding a pullback into the upper $20s, followed by a July 2000 breakout attempt that attracted aggressive selling pressure. Weak but narrow range action completed a double top variation known as a faucet pattern in 2004, yielding a breakdown that carved a cascading series of lower highs and lower lows into the first quarter of 2008.
Selling pressure escalated into March 2009 when the 10-year downtrend finally came to an end at a 12-year low in the low teens. The subsequent recovery wave posted decent gains into April 2013 and eased into a shallow trajectory that indicated waning interest, despite a roaring bull market. This weak tape added just seven points between 2013 and August 2016, topping out at the .618 Fibonacci retracement level of the multi-year downtrend (red line).
A January 2018 breakout failed just two points above the 2016 high in February, but the subsequent decline held trendline support (black line) going back to the 2009 bear market low. Committed bulls returned in May, generating a steady uptick that restored the first quarter breakout in August. Impressive buying pressure since that time has lifted the stock to the highest high since November 2001. (For more, see: Pfizer: 7 Secrets You Didn't Know.)
PFE Short-Term Chart (2017 – 2018)
The rally crossed the .786 retracement level earlier this month, predicting that upside will eventually complete a round trip into the 1999 high at $50. However, that level marks major resistance, undermining the reward:risk equation for intermediate positions taken in the low to mid-$40. In addition, the most recent uptick has now reached rising channel resistance, raising the odds for a pullback and consolidation that could expose the mid- to upper $30s.
Mixed technical messages suggest that market players keep their powder dry for now and wait for a reversal at channel resistance, or a channel breakout that favors a rapid surge into multi-year resistance. A reversal in the coming sessions may offer a more profitable entry than a breakout, especially if the decline reaches strong support at the .618 pivot and 2018 breakout level. Conversely, a rapid ascent into resistance at $50 could end the uptrend for now, yielding a long-term consolidation phase prior to a breakout to an all-time high. (See also: Merck, Pfizer to Benefit From Pharma Surge: MS.)
The Bottom Line
Pfizer stock has broken out to a multi-year high and is approaching a test at 19-year resistance near $50. Reward:risk calculations suggest that the current pattern will offer a better buying opportunity on a pullback than chasing a long position into the old high. (For additional reading, check out: Why There's Far More to Pfizer Than Viagra.)
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>