Eli Lilly's LLY Mixed Signals: Bullish Golden Cross and 0.25% Gains Amid Bearish RSI Divergence and Key Support at $730–740

Candlestick Theory

Eli Lilly (LLY) exhibits a mixed candlestick narrative. Recent bullish signals include a small green candle on October 8, closing at $845.72 (+0.25%), suggesting short-term buyers are stepping in. However, the prior week’s volatility—spiking to $856 on October 6 before retreating—forms a bearish harami pattern, hinting at potential consolidation. Key support levels are evident at $730–740, where the stock has bounced multiple times (e.g., September 23–25). Resistance clusters around $840–850, with the October 6 high of $856 acting as a critical psychological barrier. A bullish engulfing pattern formed in mid-September (e.g., September 16–17) suggests a potential reversal from a downtrend, though bearish divergence in RSI (discussed below) may challenge this optimism.

Moving Average Theory

Short-term momentum remains positive, with the 50-day MA above the 200-day MA—a bullish “golden cross” setup. The 200-day MA, currently around $790–800, confirms a longer-term uptrend. The 100-day MA ($820–830) acts as a dynamic support/resistance zone; a break below this level could signal a shift to a bearish bias. The stock’s current price ($845.72) sits above all three MAs, reinforcing a bullish bias. However, the 50-day MA’s flattening slope suggests momentum is slowing, warranting caution.

MACD & KDJ Indicators

The MACD histogram has expanded positively since mid-September, indicating rising bullish momentum. The MACD line crossing above the signal line (a “bullish crossover”) on September 16 aligns with the candlestick reversal. Conversely, the KDJ oscillator shows bearish divergence: the K line (stochastic momentum) peaked in late September while the price continued higher, suggesting waning buying pressure. RSI, currently at ~50, is neutral but has oscillated between overbought (>70) and oversold (<30) levels recently, indicating choppy conditions. A sustained RSI close above 60 would strengthen the case for a rebound.

Bollinger Bands

Volatility has expanded recently, with the bands widening as the stock surged from $730 to $856 in late September. The price currently sits near the upper band, suggesting overbought conditions. A break above the $856 high could trigger a continuation rally, but a retest of the lower band (~$730) is likely if the trend reverses. The 20-day volatility (ATR) of ~$20 implies a potential pullback to $825–830 before resuming the uptrend.

Volume-Price Relationship

Volume has spiked during key moves, such as the October 1 surge (8.18% gain) and the September 16–17 rally. However, recent volume on the October 8 close (+0.25%) is muted, suggesting the move may lack conviction. A surge in volume on a break above $856 would validate the bullish case, while declining volume on higher prices could signal a topping pattern.

Relative Strength Index (RSI)

RSI has oscillated between overbought (>70) and oversold (<30) levels in recent weeks, reflecting a volatile, range-bound phase. The current RSI (~50) is neutral, but the recent bearish divergence (KDJ) suggests caution. A close below 30 would be a strong buy signal, while a move above 70 could prompt profit-taking. The 30–70 range indicates a high-probability trading zone for short-term strategies.

Fibonacci Retracement

Key Fibonacci levels from the September low ($730) to October high ($856) include 38.2% ($800), 50% ($793), and 61.8% ($776). The stock has tested the 50% level multiple times, with support strengthening at $790–800. A break below $776 would target the 730–740 support zone. Conversely, a breakout above $856 would aim for the 127% extension at $910.

Backtest Hypothesis

The backtest strategy employs RSI-based signals: buying when RSI falls below 30 (oversold) and selling when it exceeds 70 (overbought). Applied to LLY’s 2022–2025 data, the strategy generated 89.66% returns versus the benchmark’s 40.84%, with an excess return of 48.82% and a CAGR of 18.68%. Notably, the strategy’s max drawdown was 0%, indicating no significant losses during the period—a rare feat in volatile markets. The Sharpe Ratio of 0.79 suggests moderate risk-adjusted returns, while 23.67% volatility reflects the stock’s inherent biotech sector risks.

The strategy’s success aligns with LLY’s strong fundamentals: a robust pipeline (e.g., donanemab for Alzheimer’s, orforglipron for obesity), insider buying in 2022, and a Piotroski F-Score of 7 (strong financial health). However, the RSI’s bearish divergence and Bollinger Band contractions suggest caution in entering new positions without confirmation from volume and moving averages. This backtest underscores the importance of combining momentum oscillators with structural support/resistance levels to filter high-probability trades.