Eli Lilly & Co. (LLY), one of the world’s largest drug manufacturers, has seen its stock go nowhere for 2 years. We don’t know many participants who would like a 0% return for 24 months. But this nowhere action is perfectly normal behavior. After all, Eli Lilly was up over 350% from the bottom in 2009 through September 2015. That’s a pretty nice return, but trees don’t grow to the moon and LLY couldn’t continue that pace without some digestion. And since September 2015, LLY has corrected and consolidated through price and time. If you’re familiar with our work, you know corrections through price and time provide opportunities. By studying supply and demand, we can identify when an opportunity with low risk / high reward characteristics is upon us. Eli Lilly is another such opportunity. Last week, LLY broke out of the aforementioned 2-year base. Check it out:

Not only that, but LLY is on the verge of breakout out on a relative basis versus the S&P 500. We like absolute and relative breakouts. And we like large bases. From large bases come high spaces. The 2-year base built by supply and demand is large and has strong polarity characteristics. For those non-believers who think buyers and sellers don’t remember the prospects of a stock from 17 years ago, we present the following:
 

Historical prices have significance. They are not random as some would have you believe. But we digress. Let’s identify how to get on the right side of the trade with LLY.

Here’s the daily chart of LLY:

Buyers drove the price of LLY above $85. We’ve seen a subsequent retest of that important level. Everyone has their own time frame and objective. But to us, it makes sense to own Eli Lilly above $84. With an upside target of $105, the reward-to-risk ratio is tilted in our favor. Below $84, and we’re wrong. After all, we’re not in the market to be right. We’re in the market to make money, which means being on the right side of the trade.

In conclusion, Eli Lilly has just broken out of a large 2-year base with the potential for a nice reward (about 20%) and defined risk (about 2%). We like this 10:1 tilt in our favor. As always, price knows best. Trade at your own risk.