Death Cross Brings Life to Eli Lilly, History Says   Wednesday, June 9, 2010
By Gibbons Burke
 Shares of Eli Lilly (LLY) have been trending downward in wide swings through most of 2010 and the stock is currently trading below its 200, 100, 50 and 20 day averages. It rallied on Tuesday, gaining a 'big' 1.0% to close at $32.90, but the longer term bearishness of the stock has caused the 50-day average to cross below the 200-day average in what is called a "Death Cross". The name sounds ominous, and trend-following lore teaches that this is a sign of great weakness, and that the weakness will continue.
In our empirical analysis, however, which looks at what the stock actually does following events such as this, we find once again that the lore of technical analysis is not always a reliable guide. Of course nothing is infallible, and empirical study of historical events doesn't always work either. History doesn't always repeat, but it often rhymes, somoone once said (but history hasn't record exactly who said it...).
Note that the Death Cross is not appearing on the chart above, however it may be seen on Google Finance or on Yahoo Finance charts. This may be due to a difference in the underlying date caused by adjusting the stock price to retroactively to account for dividend payments in the chart above. We do not use dividend-adjusted data in our analysis, but some sites do. Q: How has LLY performed in the past when the 50-day average has crossed below the 200-day average price? A: According to the 34 previous occurrences of this event, EventEdge indicates that LLY has shown a somewhat bullish edge that peaks 32 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Tuesday, 8 June 2010) is Thursday, 22 July 2010. LLY rallies in 79% of the cases (27 of 34) by an average of 8.4% relative to the close on the event date. The average of the 7 declines is -3.7%. The overall return of the 34 cases is 5.9%, which, based on the close of LLY on the event date ($32.90), provides a target price of $34.84. Click here to see this event in more detail in EventEdge®.
We first featured this idea after the <7101.html target=_blank>July 30, 2004 occurrence. Gibbons Burke is editor of MarketHistory.com.
Related Ideas:
| | Let variable values:
@ = GII.LLY.NYSE
theEvent = IF
50 value average of @ crosses below 200 value average of @
THEN 1
ENDIF
Date Day t+5 t+10 t+20 t+32 t+43
10/19/1971 Tue 1.0 1.2 5.2 6.2 14.8
09/14/1973 Fri 1.6 3.9 3.6 7.5 9.7
08/19/1974 Mon 2.6 6.6 7.0 -1.7 11.9
09/04/1975 Thu -6.8 -1.6 -13.3 -2.5 -8.8
12/02/1976 Thu 5.7 4.0 8.9 2.3 0.0
11/30/1978 Thu 3.4 4.9 9.7 16.9 13.5
02/28/1980 Thu -8.5 -2.9 -9.0 -3.1 -2.4
08/03/1981 Mon -4.8 -2.3 -3.9 -8.5 -9.6
08/13/1982 Fri -1.0 7.5 11.6 9.6 20.4
09/02/1983 Fri -0.2 -1.8 1.8 3.9 10.0
12/29/1983 Thu 6.1 5.9 8.8 9.9 12.3
05/30/1984 Wed 5.8 7.8 5.0 0.4 -5.2
11/07/1986 Fri -0.8 0.8 1.0 0.5 7.2
10/29/1987 Thu 1.8 -4.8 -7.7 -5.1 2.8
04/04/1990 Wed 2.3 -0.4 2.5 11.7 16.4
11/20/1990 Tue 8.3 15.7 14.0 4.9 18.2
07/15/1991 Mon 1.7 1.9 10.0 16.1 12.5
11/18/1991 Mon -0.3 -0.3 3.4 13.4 6.0
03/18/1992 Wed -1.2 1.8 1.6 -3.2 -4.7
04/19/1994 Tue 2.3 10.0 14.6 13.8 18.2
07/21/1994 Thu 1.0 2.9 19.0 17.2 20.1
09/11/1996 Wed 3.1 4.6 9.3 15.8 28.2
07/15/1998 Wed 9.7 5.2 8.7 14.9 22.5
05/20/1999 Thu -6.6 1.9 -6.7 1.0 -2.6
02/14/2001 Wed -3.7 2.5 -1.7 -2.1 3.6
07/05/2001 Thu -1.4 2.5 5.2 7.3 5.6
01/17/2002 Thu -0.4 -0.8 1.3 3.7 4.9
03/25/2003 Tue 0.3 2.9 7.5 10.3 2.0
10/10/2003 Fri -1.8 6.4 5.7 13.4 15.2
07/30/2004 Fri -4.3 -3.4 0.9 5.2 -5.8
08/15/2005 Mon -0.6 1.9 4.7 2.3 -0.8
05/19/2006 Fri 2.5 0.7 6.8 11.1 7.1
12/29/2006 Fri -0.5 1.4 3.9 5.5 0.2
11/12/2007 Mon -3.3 -3.0 3.0 3.0 7.8
06/08/2010 Tue NaN NaN NaN NaN NaN
Avg 0.4 2.4 4.2 5.9 7.4
AvgPos 3.5 4.4 6.6 8.4 11.6
AvgNeg -2.7 -2.1 -7.1 -3.7 -5.0
PctPos 50.0 70.6 82.4 79.4 73.5
PctNeg 50.0 29.4 17.6 20.6 23.5
Maximum 9.7 15.7 19.0 17.2 28.2
Minimum -8.5 -4.8 -13.3 -8.5 -9.6
StdDev 4.1 4.2 6.9 7.0 9.6
ZStat 0.1 0.6 0.6 0.8 0.8
Variance 16.8 18.0 47.1 49.5 91.4
35 Occurrences | |
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