GILD Stock: Potentially Bullish?
It has been quite a disappointing year for Gilead Sciences, Inc. (NASDAQ:GILD) stock, as its performance year-to-date is -25%. This performance is not surprising, and I have outlined numerous times in my previous reports why I am bearish on Gilead stock .
My bearish views are based on a very large bearish price pattern that has been in development for a number of years. When this pattern is complete, it could mark a long-term top in Gilead stock. This topping pattern would suggest that the bear market in GILD stock has only begun.
Using price patterns and signals generated from a price chart is known as technical analysis. This is the body of knowledge I use to base my investment strategies and views on. This style of investment analysis alleges that past price and volume can be used to discern trends and forecast future prices. I have been using this method to create trading strategies for over a decade. Although it is not perfect, I have enjoyed some success in doing so.
The lack of perfection stems from patterns that fail, and I mention it in this case because the large bearish pattern I am referring to could fail and morph into a bullish pattern if an embedded pattern plays out.
The following Gilead stock chart illustrates the large bearish pattern that has developed.
Chart courtesy of StockCharts.com
The bearish pattern that is highlighted on the GILD stock chart above is known to traders as a rounded top. This is a broad pattern that takes time to develop, as it symbolizes the effects of share distributions as institutions exit their respective positions. The trend slowly turns from bullish to bearish and, when it is complete, it indicates that a new bearish trend toward lower prices has begun.
The indicator labeled “MACD” in the lower panel of the chart above also suggests a bearish view. 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 bearish 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 price signal and pattern that has developed at the tail-end of this rounded top.
Chart courtesy of StockCharts.com
In October 2015, at the peak of the rounded top, a death cross was generated. A death cross is a bearish signal that is produced when a faster 50-day moving average (highlighted in blue) crosses below a slower 200-day moving average (highlighted in red). Traders use this signal to confirm that a bear market is on the horizon because it alleges that bearish momentum is overwhelming any bullish momentum and that, as a result, the bears are in full control of GILD stock.
This signal is still bearish, and both moving averages that generated this signal are sloping lower. There are little to no indications that this signal will avert anytime soon.
The pattern that has developed is quite constructive, and any bullish hope that the bearish rounded top can be averted hinges on this pattern. The pattern is a falling wedge, and it constitutes two converging trend lines. These trend lines are created by connecting the price peaks for the trend line that represents resistance, and the price troughs for the trend line that represents support.
On average, falling wedges are bullish, and this pattern is confirmed when GILD stock breaks above the trend line that represents resistance. Such a feat would also suggest that the previous high set in June 2015 would be tested, but it is too early to speculate on such an outcome. The key takeaway is that a bullish breakout of the falling wedge is necessary to avert the larger bearish pattern that is currently gripping Gilead stock.
Bottom Line on GILD Stock
The bearish pattern and price signals continue to dominate the trading action in Gilead stock. There is some hope that the bearish trend can become bullish but, in order for this to occur, GILD stock needs to break out of the falling wedge in a bullish manner.