Wait for Another 10% Drop In Gilead Before Buying
Gilead (GILD) - Get Report could use a heavy dose of growth, but it's now nowhere to be found. And despite the appeal of a cheap valuation, the stock -- currently at around $85 a share -- is poised to suffer some analyst downgrades. Investors should wait for the dust to settle at around 10% lower before buying in.
On Monday, the biotech specialist saw its stock price decline some 4% in the after-hours session, thanks to gloomy guidance for the rest of 2016. Revenue in its bread-and-butter Hepatitis-C business declined 9% during the quarter (Harvoni and Sovaldi combined), thanks to pressure from generic competition. And with no growth catalyst to support a higher stock price, Gilead shares will see increased selling pressure, sending it down towards support at around $78. Take a look at the chart, courtesy of TradingView.
Gilead shares closed during Monday's regular session $88.55, up 2.31%. The stock, which is down some 12% year to date, had climbed 10% just in the past thirty days in anticipation of better earnings results. The gains not only sent the shares above both the 20-day and 50-day averages at around $85.24 and $84.71, respectively, but also within arm's reach of the 100-day average at $88.64. These bets proved wrong.
The chart shows increased buying pressure had pushed the shares above resistance $87.60 (red line.) Given that the company lowered its full-year revenue guidance by about $500 million, while raising its forecast for expenses, selling pressure will not take over. The stock is poised to give up its 10% one-month gains on its way towards support at around $78 per share (green line.) It's at that point Gilead stock is safe to buy. Anything in between is trap.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.