Mega-cap biotechnology stock Gilead Sciences, Inc. (GILD) underperformed throughout the sector's long correction, slumping near multi-year lows despite a deep pipeline of highly profitable pharmaceuticals. The group's recent breakout has finally ended the long swoon, attracting significant buying interest that has lifted the stock into an uptrend that could eventually test the all-time high posted in 2015.
This bullish turnaround marks an interesting play for disciplined market timers willing to toss the issue in a long-term account and walk away because rebuilding lost sponsorship could take well into 2018 and beyond. That means the stock is not likely to get much attention while it builds multiple layers of support between the 2015 high above $120 and the 2017 low in the mid-$60s. (See also: 5 Biotech Stocks on Sale in a Rich Sector.)
GILD Long-Term Chart (1992 – 2017)
The company came public at a split-adjusted 63 cents in January 1992 and dropped into a narrow trading range between that level and deep support at 20 cents. It finally broke out in 1995 and lifted to $1.33, which marked resistance for another three years. The subsequent advance generated volatile two-sided action into 2001, when the stock entered a more vertical uptrend that added points at a rapid pace into the 2008 high at $28.82.
The stock held up relatively well during the economic collapse, bottoming out at $17.80 in October, but it remained stuck between that year's high and low for more than four years before breaking out in the second half of 2012. It then entered the most prolific period so far this century, quadrupling into the June 2015 all-time high above $120, ahead of a sector-wide correction triggered by a price gouging controversy. (For more, see: GILD Just Became Big Pharma.)
Gilead Sciences stock broke two-year range support in the mid-$80s in May 2016 and entered a persistent declining channel that found support at the April 2014 low in May 2017, long after its peers had bottomed out and bounced strongly. Strong action since that time has lifted the stock back above the broken 50-month exponential moving average (EMA) in the mid-$70s, signaling a new uptrend that could eventually reach the 2015 high.
GILD Short-Term Chart (2015 – 2017)
The recovery wave starting in the second quarter of 2017 reached 200-day EMA resistance in June, yielding a July breakout followed by a successful August test that has generated several weeks of strong buying interest supported by higher-than-average volume. This bullish sequence has set off a wave of buying signals, bringing substantial capital off the sidelines while establishing new support in the upper $70s. (See also: Gilead's Stock Driven by Emotion Not Fundamentals.)
A Fibonacci grid stretched across the two-year downtrend highlights key conflict zones that could come into play during the current recovery effort. The week-long advance still has not reached the .382 Fibonacci sell-off retracement level at $86.50, which also marks the breakdown from the 2014-2016 horizontal range. Given recently vertical action, traders should look for a reversal at that level followed by a shakeout that could offer a low-risk buying opportunity at or below $80.
On-balance volume (OBV) topped out in April 2016, nearly 10 months after the price, signaling major complacency that may have contributed to the long decline. The indicator settled well above the 2014 low in June 2017 and entered a healthy accumulation phase that is now picking up steam. Even so, it will take significant buying interest in the coming months for a return trip to last year's high. (For more, see: Gilead Rally Isn't Fully Warranted: Morgan Stanley.)
The Bottom Line
Gilead Sciences stock has entered a new uptrend after a two-year decline cut the stock's price in half. Despite the turnaround, it will likely take months for the recovery wave to gather the sponsorship needed to challenge the 2015 all-time high. (For additional reading, check out: Top 5 Biotech Stocks.)
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>