Gilead Stock Needs to Conquer These Hurdles

Gilead StockGILD Stock: Bullish Optimism

Gilead Sciences, Inc. (NASDAQ:GILD) stock has been caught in a funk. I have expressed my views on this investment on multiple occasions, and each time, I have come to the same bearish conclusion about Gilead stock. The purpose of this publication is to outline the necessary conditions that would create an environment where I could justify holding a bullish view on GILD stock.

I generate my views on a potential investment using technical analysis, which is just a fancy way of saying that I analyse indications and the price action that occurs on a company’s stock chart in order to generate a bullish or bearish view. As a result, the context of this publication will outline the technical requirements I would need in order to negate the bearish view I currently hold on this investment.

The price chart highlights a very large technical price pattern known as a rounded top, which is currently being painted on the stock chart.

The following monthly indicator on the Gilead stock is needed to generate a bullish view.

Gilead stock chart

Chart courtesy of StockCharts.com

This pattern illustrates a slow transition from a bullish trend to a bearish trend. This pattern has been in development for a number of years and, given the fact that the equities markets have formed new highs in this time frame, this only serves to compound the poor performance of this investment. There is a sliver lining because this price pattern can quickly become constructive if the share price stages an advance.

This advance would not only serve to undo the rounded top, but it would also cause the indicator in the lower panel to generate a much-needed bullish signal.

The indicator in the lower panel is labeled MACD, which is an acronym for moving average convergence/divergence. MACD is momentum indicator that generates a signal based on the crossing of a signal line. This indicator is calculated by subtracting the 26-month exponential moving average from the 12-month exponential moving average, and plotting this variable over the nine-month exponential moving average, which acts as the signal line.

A bullish MACD cross is an indication used by traders to time an entry point. This indication serves to suggest that bullish momentum is driving the trading action, and therefore, the path of least resistance is paved towards higher stock prices.

The exact opposite can be said about a bearish MACD cross, which traders use as an indication to time an exit point. This indication serves to suggest that bearish momentum is acting to contain any further advance, and therefore, the path of least resistance is geared towards lower stock prices.

The indications on the price chart above were generated using a monthly scale. A monthly scale serves to smooth out the number of signals that are generated. As you can see, only one signal has been generated in the last six years. Smoothing serves to filter out random noise, and it also adds weight and significance to the indication that is generated.

In order to justify holding a bullish view on this investment, I would require a bullish MACD cross. This indication would suggest that the bearish trend that has pressured the stock price since peaking in 2015 has finally concluded, and would also produce the necessary tailwinds for a bullish trend to develop.

The generation of a bullish MACD cross would also mean that the indications on the following Gilead stock chart have turned positive.

GILD stock chart

Chart courtesy of StockCharts.com

In October 2015, shortly after the share price peaked, GILD stock generated a death cross. This death cross is highlighted on the chart above, and this signal is created when the faster 50-day moving average crosses below the slower 200-day moving average. This indication serves to suggest that the trend has become bearish, and this is why traders use this indication to confirm that a bear market is in development.

This indicator has been in bearish alignment since the signal was generated, because the trend to the downside has been relentless. This relentless trend has been characterized by a series of lower lows and lower highs. In order to undo the implications suggested by this indicator, higher stock prices are needed. These higher stock prices would include GILD stock breaking above the 200-day moving average.

The 200-day moving average acts as the dividing line between a bullish investment in a bull market, and a bearish investment in a bear market. This is easily illustrated using the example above, because the moment Gilead stock broke below this moving average on a sustained basis, a bearish trend quickly evolved. Breaking above this moving average would be the initial stepping stone needed in unwinding the bearish indications that are currently pressuring GILD stock lower.

Bottom Line on Gilead Stock

Numerous bearish indications on the GILD stock chart continue to pressure the stock price lower. In order to unwind these bearish indications, Gilead stock needs to stage an advance. The first sign that the bearish trend is being unwound would be indicated by the stock price crossing and closing above the 200-day moving average.