Pfizer Stock Could Test 2019 Low

Dow component Pfizer Inc. (PFE) sold off more than 1% in Tuesday's pre-market after beating Q4 2019 profit estimates by a penny and reporting in line revenues of $12.7 billion. Revenues dropped a substantial 9.2% year over year, highlighting the company's failure to transform a huge drug pipeline into sustained growth. Unfortunately, this morning's downturn could gather momentum in coming sessions, filling out a topping pattern that now stretches over 16 months. 

The stock entered a major decline in July 2019 after key downgrades from Bank of America/Merrill Lynch and Morgan Stanley. It fell nearly 20% into an 18-month low in the mid-$30s in August and bounced, but it hasn't fully recovered the loss in the past six months. Time may be running out because the uptick is now approaching a tough resistance level that could trigger another multi-week downturn.

Pfizer currently sits at the dead center of Dow component performance, right above rival Merck & Co., Inc. (MRK). Both pharmaceutical giants could face heightened scrutiny about drug prices in coming months, with the presidential election just nine months away. Both political parties are unified in their opposition to industry gauging practices, but regulatory oversight hasn't reached the draconian levels that many expected after last decade's well-publicized pricing scandals.

PFE Long-Term Chart (1987 – 2020)

The stock entered a historic uptrend after posting a multi-year low during the 1987 stock market crash, underpinned by an impressive drug pipeline that included the wildly popular Lipitor and Viagra compounds. The rally gained ground in multiple waves, posting four stock splits before topping out at $25.44 in the second quarter of 1999. A 2000 breakout attempt failed, carving the second high in a double top that broke to the downside in 2002.

The subsequent decline posted major losses before bouncing in the lower teens in 2005 and carving a basing pattern that failed at the end of 2007. It dropped to a 13-year low at $7.80 in March 2009 and turned higher, finally ending the seven-year downtrend. The subsequent bounce posted respectable gains into 2013, when Pfizer stock reached 14-year resistance and eased into a shallow trajectory, adding just four points in the next five years. It then entered a short-lived buying climax, topping out at an all-time high in the mid-$40s in December 2018.

A shallow pullback accelerated after Q2 2019 earnings in July, dropping the stock to a 52-week low at $33.97. It has bounced in a bear flag pattern since that time, suggesting that selling pressure will resume after overbought technical conditions ease. It is possible that the first wave of a renewed downturn started after Tuesday's mediocre Q4 report, setting the stage for selling pressure that could easily carry into a test at last year's low.

However, the monthly stochastics oscillator entered a buy cycle in October 2019 and still hasn't reached the overbought zone. Theoretically, this should keep remaining bulls in charge through the first quarter. In addition, the bounce still hasn't reached the trendline of lower highs, suggesting that the uptick will add another two or three points before running out of steam. Unfortunately, that isn't enough to attract sidelined investors or the technically oriented crowd.

PFE Short-Term Chart (2016 – 2020)

The sell-off into August 2019 ended at the .618 Fibonacci retracement of the 2016 to 2018 uptrend, while the bounce through January reversed at the .618 retracement of the 2018 to 2020 downtrend. The advance has filled the July gap between $40.25 and $41.50, adding to the odds for an immediate reversal. However, relative strength isn't cooperating, raising the potential for a final uptick into the .768 retracement at $42, which has aligned with the trendline of lower highs.

The on-balance volume (OBV) accumulation-distribution indicator lifted above the 2015 high (red line) in September 2018, but buying power faded immediately, setting the stage for the December peak. OBV has wobbled sideways in the past 13 months, with a brief surge to a new high in June 2019 running immediately into a buzzsaw of selling pressure. This mixed pattern doesn't offer a sizable advantage to bulls or bears at this time. 

The Bottom Line

Pfizer stock has turned lower after a mixed earnings report and could resume an intermediate downtrend in the coming weeks.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.