After the latest rally, biotechnology stocks as a group and as represented by the NASDAQ Biotechnology Index (NASDAQ:IBB) are back in the plus column for the year. but the price action since the summer highs was ugly and scared many quicker hands out of these stocks.
Through a technical lens, the jury is still out as to whether another leg lower is in the cards in a six month time-frame, but some single name stocks within the space, such as Gilead Sciences, Inc. (NASDAQ:GILD) are looking promising for a further rally into year-end.
Earlier this week, Gilead Sciences reported its third-quarter results, which came in at $3.22 per share on an adjusted basis — better than analyst forecasts. Top-line revenue of $8.30 billion also came in better than the $7.80 billion estimated by analysts.
To top things off, the company also raised its 2015 full-year revenue guidance by $1 billion to a range of $30 billion to $31 billion.
As a quick but important side note, I must mention that I believe from a bottom-up fundamental perspective, most investors not privy to the high complexities of biotechnology drugs and the drug approval system by the FDA would be wise not to become overly confident in their analysis of any single biotechnology stock.
However, playing biotechnology as an investment theme and through the lens of trend following with clear risk parameters in place makes sense from a risk/reward perspective.
GILD Stock Charts
Looking at the multi-year chart of GILD stock, we notice that despite the sharp 30% correction through the summer months, the stock managed to hold its 2012 support line on a weekly closing basis. As such and for the time being until another attempt at breaking this support line is made, a cautious assumption could be made that the summer’s pause was constructive consolidation and that one more run toward the summer highs may be in the cards.
On the closer-up daily chart, we then see that the price action since the August lows has formed a series of higher highs that systemically pushed it back above its red 200-day moving average and into an area of lateral and diagonal resistance that currently also matches up with its blue 100 day moving average.
There is no reason to complicate manners at this juncture, and with earnings out of the way active investors can more clearly focus on price action.
If GILD stock can overcome the $111 area, upside toward the $120 or $125 area may open up, although not in a straight line. If fund managers want to further chase this market higher into year-end, after a possible multi-week pause in coming weeks, then biotechnology remains a logical spot for them to be involved in.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, TheEssence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
