Gilead Sciences Stock at Cusp of New Uptrend

Gilead Sciences, Inc. (GILD), the third largest biotechnology stock on the U.S. exchanges, may have completed a multi-year bottoming pattern, setting the stage for an uptrend that could reach the lofty heights posted in the middle of the last decade. That's good news for long-suffering shareholders as well as blue-chip biotech investors who have watched their portfolios underperform broad benchmarks in recent years.

Similar stories are playing out across the market landscape, with iShares Nasdaq Biotechnology Index Fund ETF (IBB) now perfectly positioned to mount 2019 resistance and head toward the all-time high posted in July 2015. This is unexpected, to say the least, in an election year that will shine an unfavorable spotlight on the pharmaceutical industry and its pricing practices. It's entirely possible that investors are already looking past November, expecting a second Trump administration to back away from new regulations.

GILD Long-Term Chart (1992 – 2020)

Gilead Sciences came public at a split-adjusted 69 cents in 1992 and entered a downtrend that posted an all-time low at 20 cents in 1994. The subsequent uptick reached a new high in 1995, underpinning an uptrend that eased into a rising channel in 1999. The rally was unaffected when the internet bubble broke one year later, continuing to post steady gains within the channel into July 2008, when it topped out at in the upper $20s.

The stock posted a 38% decline during the economic collapse but failed to bounce into the new decade, unlike the majority of the recovering stock universe. It broke the 2008 low in 2010, finding support in the mid-teens, and tested that level successfully 13 months later. This bullish action completed a double bottom reversal, establishing an uptrend that attracted intense momentum buying interest in 2013.

The rally posted exceptional gains into the end of 2014, topping out at $117 and failing a breakout attempt above that level in 2015. Aggressive bears then took control, carving a decline that cut the stock's price in half into the 2017 low at $63.76. The subsequent bounce failed in early 2018, yielding a final sell-off that undercut the 2017 low in December. The stock has been testing that level for more than a year while the long-term pattern has carved a massive double bottom.

Price action reached 50-month exponential moving average (EMA) resistance for the first time since October 2018 last week, triggering a reversal, but an uptick in buying volume suggests a successful assault on this barrier in coming weeks. That event would set off preliminary buying signals, but it could be months or longer before the stock catches the undivided attention of Wall Street analysts and investors now chasing FAANG and other big tech stocks.

GILD Short-Term Chart (2017 – 2020)

The on-balance volume (OBV) accumulation-distribution indicator entered an accumulation phase in June 2017 and just reached the level posted when the stock topped out in 2014. This volume activity is generating a major bullish divergence, predicting that price will play catch-up in coming months. An OBV uptick above the red line would be especially bullish, indicating that institutions are quietly loading up on shares in anticipation of higher prices.

The rally into February mounted the 200-day EMA between $65 and $66, marking a price level that needs to be held at all costs because the stock has failed the past seven attempts to clear this barrier. As a result, there's considerable risk in buying the current pullback, but a bounce that exceeds the Feb. 7 high at $71 should generate rapid upside into the October 2018 high near $80 and finally lift the slumping monthly stochastic oscillator into a sustained buy cycle.

The Bottom Line

Chronic laggard Gilead Sciences may enter a new uptrend in coming months, catching the majority of market players by surprise.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.