Gilead Sciences Inc (GILD) has had an amazing run over the last 20 years or so, going from $0.37 to $116 is what every investor dreams about. Although it’s unlikely we will see the same type of performance in the next 20 years, that doesn’t mean investors can’t continue to see some solid returns from this company if the broad markets remain favorable.
Recently due to some fundamental issues the stock has had some short term under-performance. The chart above shows GILD’s price change to the Biotech Index fund (IBB). Could this be a sign of things to come? Could be, it’s impossible to know for certain beforehand. But I am always willing to give the momentum the benefit of the doubt unless/until the trend unwinds.
So lets analyze the trend and get an idea of what to expect and what to look for. In 2008-2010 the stock price experienced a picture perfect A-B-C correction (dropping $11 in each wave). I have detailed my thoughts and how I interpret an A-B-C correction pattern in my new book “The Trading Playbook” which is due for release on next Friday the 27th.
Since the stock price bottomed in 2010 it has been pretty much full speed ahead, although there has been a 20-25% correction each year, including two separate but equal 25% corrections in 2014. It is amazing how simple math can often help you understand market movements more than any pundit can.
In 2015 the stock price has spent the majority of its time trading between 12/19/14’s settlement price and 12/22/14’s large gap down open price. Now I have no idea what direction price will break out of, which is why risk management is always most important. But I believe the longer term trend remains in tact so I will give it the benefit of the doubt for the time being.
In the short term, a break out of the range to the upside would likely signal that the correction has concluded and a rally above $130 is underway. A break to the downside would likely lead for a retest of the low around $85 and the previous swing low just below $85. I would see that as a good low risk entry point for an investment, as it falls in line with the patterns of the previous corrections. A significant break below $85 would have me seriously considering the continuation of the uptrend and with short interest rates projected to rise sometime this year, maybe we will see it. But for now I don’t see the need to reassess.
(Disclaimer: Long GILD)