GILD Stock: Bullish Developments
Wow, Gilead Sciences, Inc. (NASDAQ:GILD) stock has just taken a serious turn, and the timing could not have been any better. In a June 14 publication titled “Gilead Stock Needs to Conquer These Hurdles,” I focused on GILD stock and outlined the developments that I would have needed to see in order to justify holding a bullish view on this investment.
In recent days, GILD stock has staged an advance, and a number of the hurdles I identified have been surpassed. It’s as if someone read my publication and decided they would attempt to paint the chart in a bullish manner. This is of course just rhetoric, nonsense, and I do not believe it for one second, but it’s fun to spin a few conspiracy theories on occasion, especially when the timing is so well-placed.
The truth of the matter is that Gilead is a drug maker and this sector has been put under a lot of scrutiny following a tweet by Hillary Clinton, where she vowed to curb the predatory pricing polices that certain drug makers employed in order to boost their bottom lines. President Donald Trump made a similar pledge, and a dark shadow was cast on this sector as a result.
An announcement is scheduled to be released in the coming weeks that will outline government regulations and stipulations regarding such pricing policies. Although this may seem like bad news on the surface, it will finally act to lift the shadow that is blanketing this sector because we will finally be able to quantify the repercussions of this policy.
From an investor’s standpoint, this creates the dynamic of “sell on rumor, buy on news.” The “rumors” began when the incumbent Hillary Clinton tweeted about how she vowed to curb theses predatory pricing policies, and the “news” is scheduled to arrive in a couple weeks, when the Trump administration outlines its polices against such practices. Any investor who shorted based on this rumor has every inclination to cover their position by buying back their shares because the news they have long awaited is finally set to arrive.
This event will cause money sitting on the sidelines to return to this lagging sector, fueling an advance. It seems as though investors are front running this announcement, which is causing the recent buying binge in this sector. The following Gilead stock chart illustrates this binge buying that has occurred over the past few days and the implications it carries.
Chart courtesy of StockCharts.com
A bearish trend in GILD stock was defined using two key metrics, the downtrend line and the 200-day moving average.
The downtrend line is a simple tool used to define a bearish trend. This downtrend line is created by connecting the significant peaks that stopped the stock price from advancing beyond it. This downtrend line was created omitting the peak that was created in April 2016, because GILD stock gapped lower shortly after it broke above the peak. This method has created a fitted downtrend line with multiple points of contact, creating a trend line that is quite significant.
The downtrend line is used as a tool because it acts to separate Gilead stock from a bull market. As long as the GILD stock price was below it, I could only assume that bearish implications were set to follow. Breaking above it was an indication that the bearish trend that began in June 2015 had finally concluded.
Similar indications are being suggested by the 200-day moving average, which is created by averaging the closing price over the last 200 days and plotting that value over the price chart in order to provide a smoothed price trend. The 200-day moving average is a metric that is used to define whether an investment is healthy and trading in a bull market, or unhealthy and trading in a bear market. As a result, I have a tendency to refer to this moving average as a dividing line.
In December 2015, Gilead stock broke below this moving average and it failed to regain its footing ever since. Until now. As I write, Gilead shares have appreciated to the tune of 9.95% in three days. In this process, GILD stock has managed to break above the downtrend line and the 200-day moving average.
Jumping over these hurdles is strongly suggesting that the bear market that plagued this investment is finally subsiding, which means the door is wide open for a new bull market to develop.
Bottom Line on Gilead Stock
Gilead stock has appreciated a considerable amount in recent days and in the process it has broken above key levels of resistance that were serving to contain the stock price after it peaked in June 2015. This is a bullish indication of things to come, but there are still a few more indications that are needed to confirm that a much larger rally in GILD stock is commencing. Jumping these hurdles was an incredible start, and my interest is definitely piqued.