GILD Stock: Simply Bearish
Technical analysis is the method of discerning stock price trends and forecasting future price moves based on historical price data. Using this method, I have come to a trading bias with regards to Gilead Sciences, Inc. (NASDAQ:GILD).
For those who are long, I am sorry to say that I am bearish on GILD stock, and I have reason to believe that Gilead stock has some distance to go before the trend toward lower prices has concluded.
Technical analysis is both art and science and, for this reason, many analysts’ opinions can differ while looking at the same price chart. I like to focus on charts that are uniform and symmetrical. In essence, I am looking for a chart that leaves little for analysts to argue about as the the picture and pattern are quite clear.
The following chart illustrates where my bearish bias on Gilead stock stemmed from.
Chart courtesy of StockCharts.com
In my studies of technical analysis, there was a point that was emphasized and is important with regards to the Gilead stock chart above. Bottoms and tops are not created equally, and this difference has everything to do with behavioral finance. Fear drives bottoms and, as a result, bottoms are created swiftly, as fear doesn’t last very long. Greed creates tops, and this emotion can last for a quite a while and, as a result, tops take time to develop.
The chart above illustrates that GILD stock has been creating a top for some time now. The pattern that was created is known as a rounded top. The pattern is near completion and would mark the beginning of a bear market.
I have seen many similar patterns play out, and the argument that the share price has already plummeted this far, is one I hear often, but that only means that the trend is to the downside. Downtrends have a tendency to last much longer than most assume, and will drop lower than most fundamental valuations warrant. The key is to be on the right side of a trade, and waiting until the trend has changed in the direction you are planning on assuming.
Aside from the pattern, the indicator labeled as “MACD” in the lower panel of the chart above also confirms the bearish premise. In March 2015, the moving average convergence divergence (MACD) indicator generated a bearish cross. MACD is a simple and effective trend-following momentum indicator.
Signal line crossings are used to distinguish between bullish and bearish signals. The bearish cross indicates that the bears are now in control of GILD stock, and that the path of least resistance is toward lower prices. This theme will continue until the MACD lines cross in a bullish manner, indicating that the bearish momentum has ended and that the bulls have now once again regained momentum and control.
The following Gilead stock chart illustrates the recent developments in stock price.
Chart courtesy of StockCharts.com
In October 2015, GILD stock generated a death cross. A death cross indicates that a bear market is on the horizon, and many traders use this signal to gauge the overall momentum moving a stock. The signal is confirmed when the faster moving average (50-day moving average) moves below the slower moving average (200-day moving average). This signal came shortly after the monthly MACD cross and reaffirmed the bearish premise that began with that signal.
I use moving average crosses quite a bit in my analysis because I have found them to be significant. So much so, that I refuse to trade against them.
A pattern has effectively contained the price for about a year now. This pattern is known as a falling wedge. The bottom of this pattern has acted like support on multiple occasions. This pattern can be constructive in both a bullish and bearish view but, because the signals that preceded this pattern were all bearish, I have to believe that support will fail and Gilead stock is susceptible to a selloff. This view of a selloff will only come into play once GILD stock closes below the support line that defines the bottom of the falling wedge.
The Bottom Line on Gilead stock
I am bearish on GILD stock, and the patterns and signal generated on the price chart have confirmed my premise. My bias on Gilead stock will remain bearish until the chart gives me reason to change that view.