Gilead Breaks Out to Channel Resistance After Industry Consolidation

Bristol-Myers' Celgene Acquisition Boosts Biotech Stocks

Gilead Sciences, Inc. (GILD) shares rose more than 4% on Thursday morning after Bristol-Myers Squibb Company (BMY) reached an agreement to acquire Celgene Corporation (CELG) in a transaction worth $74 billion. The combination could mark a renewed effort by large pharmaceutical and biotechnology firms to bolster their drug portfolios ahead of patent expirations as well as move into new therapeutic areas. Traders have been speculating as to what companies could be the next targets.

In December, Gilead Sciences doubled down on its nonalcoholic steatohepatitis (NASH) pipeline with a $1.5 billion deal with Scholar Rock Holding Corporation (SRRK). The company gained global rights to in-license three transforming growth factor beta (TGFβ) drugs targeting fibrotic diseases. Many analysts consider NASH to be "the next big thing" for drugmakers, representing a $35 billion market opportunity with over 30 million existing and about 90 million potential patients in the U.S. alone.

Technical chart showing the share price performance of Gilead Sciences, Inc. (GILD)

From a technical standpoint, the stock rebounded from its lower trendline support to the upper end of its price channel. The relative strength index (RSI) reached neutral levels at around 52.02, while the moving average convergence divergence (MACD) experienced a bullish crossover that could signal further upside ahead. These indicators suggest that the stock has room to break out from its downtrend.

Traders should watch for a breakout from near-term resistance at the 50-day moving average, trendline and R1 resistance at around $68.00 over the coming sessions. If that happens, traders could see a move to retest highs near R2 resistance at 77.02. If the stock breaks below the pivot point at 65.05, traders could see a move lower to trendline support near S1 support at 57.82 before another attempt higher. A breakdown from those levels could lead to a move lower to S2 support at 53.08.

The author holds no position in the stock(s) mentioned except through passively managed index funds.

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