Gilead Sciences, Inc. (GILD) — Few analysts had anything negative to say about this leading biotech company last year, but shares topped out last summer. GILD stock is now almost 30% below that high and down 14% year to date. Meanwhile, analyst chatter has become more conservative (too little too late as usual).
Gilead Sciences reported better-than-expected fourth-quarter results on Feb. 2. Sales grew 16% year over year while earnings per share (EPS) jumped 37%. Investors’ positive response to the report stopped the slide in shares, at least for now.
After a multiyear rally, GILD stock began a bigger picture top-building phase in 2014. Shares managed one more push higher in the first half of 2015, but with upside momentum waning, they no longer had the strength to continue.
Looking at the weekly chart below, the topping phase resulted in a massive head-and-shoulders formation. The pattern’s neckline intersects near current levels and stands a strong chance of being broken, which could lead to a drop to the $70 or even $60 area.
However, in the near term, GILD stock, along with the broader market, looks increasingly oversold. In fact, from a momentum perspective, the MACD oscillator is in unchartered oversold territory. In my opinion, the next rally should be sold into, but a sharp bounce could offer active traders a good reward/risk setup.
On the daily chart, we see that all medium-term moving averages are now pointing lower. If GILD stock can hold above $87, it would confirm last week’s lows with a higher low.
The $100 level should again offer resistance. Traders looking to capture a dead cat bounce should buy GILD stock at $87 with an initial price target of $94 to $95 for a potential gain of at least 8%.
As of this writing, Serge did not hold a position in any of the aforementioned securities.
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