Biotech stocks are on the mend with breakouts multiplying across the sector. But not all drug plays are being bid up. Chief among the scorned is Gilead Sciences, Inc. (NASDAQ:GILD), which suffered a serious earnings beat-down and has yet to recover.
In fact, if recent price action is any indication, GILD stock is on the precipice of another plunge into the abyss.
For those new to the Gilead game, here are a few stats to bring you up to speed: Since the biotech bull market flamed out last July, Gilead Sciences has tumbled 36%. Despite recently beating earnings with $3.08 per share, traders delivered a harrowing one-day haircut of 8.5% on monster volume.
Since then, any and all bounce attempts have been stamped out in short order. And this despite the recent warming for all things biotech.
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The S&P Biotech ETF (NYSEARCA:XBI) just completed a bottoming pattern and is breaking out across all time frames.
The first and easiest takeaway is that GILD stock is one of the worst ways to play the biotech space. Go with best of breed if you think the good times keep rolling. I suggest Celgene Corporation (NASDAQ:CELG).
With Gilead still steeped in a downtrend beneath all major moving averages, it’s worth keeping an eye out for low-risk bearish plays. One such setup is beckoning as I type. The sideways chop in the stock over the past two weeks is creating a textbook low base pattern at the $79 support level. A breach of that floor and another swoon is highly likely.
The GILD Stock Trade
With earnings in the rear-view mirror and the summer season well underway, option contracts are being offered at a steep discount across the land. If you think GILD continues biting the dust consider grabbing the Oct $80 puts for around $4.
The risk is limited to the initial $4 debit and will be forfeited if the stock is above $80 at expiration. To minimize the risk, I suggest bailing if Gilead takes out $82. The reward is unlimited, offering handsome profits if GILD really bites the dust.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.
