Getting stuck in sideways purgatory can leave traders flummoxed. Should they cut bait or ride out the position in hopes that it will eventually trend upwards? Before Q2 earnings, Eli Lilly (LLY) traders were feeling just with signs that it could be poised to pop, while other market forces were blowing headwinds in its direction. The company smashed its Q2 earnings, but the stock fell 14% thereafter.
Earnings per share in Q2 was $0.74 higher than expected. Meanwhile, revenue was up 38% compared to a year ago. A positive outlook after beating earnings expectations is like a free dessert with dinner, and bullish LLY traders got just that. The company raised its fiscal 2025 sales guidance to $60 to $62 billion compared to the previous $58 to $61 billion.
“I feel good about the value of the company. Investors have to decide what they think,” Eli Lilly CEO David Ricks told CNBC’s Squawk Box. “But Lilly is rolling, and you look at the beat and raise, strong growth on the back half, we’re excited about the future for our company and for patients who need our products.”
LLY Spikes & Sinks
Before earnings, LLY’s year-to-date chart showed that lack of direction. The stock started the year strong before falling in April like the rest of the market. It had a nice run up following the fell-off, but like most sharp spikes, it trended back down again as the dog days of summer are upon us.
Technical indicators also showed a possible inflection point. LLY is trading below its 200-day moving average, signaling the long-term trend is unfavorable or a buying opportunity could be present. It’s barely above its 50-day moving average, which again, indicates a lack of direction. Like a skilled poker player, looking at its relative strength indicator (RSI) doesn’t offer much information. Just over the midpoint of July, the RSI is just under 50. That doesn’t confirm a momentum trends towards the up or downside.
The stock’s behavior following the earnings report reminded traders that positive earnings doesn’t always translate to a positive market reaction. Hence, the steep sell-off after the earnings announcement.
A "Coiled Spring"
Fundamentally, the hype around its experimental weight loss pill orforglipron and obesity drug Zepbound should keep generating excitement for investors. Financial talking heads were already touting the stock ahead of its Q2 earnings release.
“This thing is just a coiled spring when we get the new numbers,” said CNBC Mad Money host Jim Cramer.
“There are many big studies down the pipe. A hypertension study, it’s going to be remarkable. There’s going to be heart failure, and there’s going to be Alzheimer’s study,” Cramer added. “How can you leave this one right here?”
Certainly, Cramer has a point, as health problems continue to exist. Unless LLY develops a miracle elixir that cures all ailments, issues like heart disease will continue to keep bullish LLY investors hopeful.
However, negative events can compress a coiled spring. Following its earnings results, Eli Lilly noted that patients lost 12% of their body weight from its weight loss pill. Wall Street was expecting 15%. Novo Nordisk, its closest competitor, is also looking to release a weight loss pill with the anticipation it could achieve better results. The result was the sell-off following its positive earnings.
Furthermore, tariffs remain a wild card, as U.S. president Donald Trump is proposing up to 200% levies on pharmaceutical imports. This obviously counterbalances any positive outlook moving forward, but it will be a wait-and-see affair for LLY traders.
2 Single-Stock ETFs for LLY
As mentioned, just because a company beats earnings doesn’t mean the markets will always react positively. Eli Lilly is a classic case of this. Hoping for LLY’s stock to pop or fall further isn’t a trading strategy. However, there are single-stock ETFs that can help traders generate returns irrespective of whether the stock goes up or down.
For bullish trends, consider the Direxion Daily Bull 2X Shares (ELIL ) that gives traders the opportunity to double up on gains. If traders want to play events like an unfavorable earnings report or other negative news, take a look at the Direxion Daily LLY Bear 1X Shares (ELIS ), which offers -100% of the stock’s daily price performance.
That isn’t all. Direxion has a full suite available to traders who want to play the most popular names via single-stock ETFs or broad sectors.
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