Shares of Gilead (GILD) - Get Report traced out an ugly downside reversal on Friday. The stock opened the session with an upside gap extending its rally off the the Wednesday low to 4.35%. Gilead quickly gave back the Friday gain, and by the close, the stock was off more than 2.25% on accelerating trade. This was a considerable amount of damage and could lead to a steep pullback.
For Gilead investors, a retest of the 2016 lows may be on the way, along with a very low-risk entry opportunity.
After bottoming late last month near $82, Gilead began to rebound. The stock had reached a deeply oversold reading in its daily moving average convergence/divergence after falling over 18% from December's close. As January came to a close, downside volume reached its heaviest level in over a year. With shares oversold and volume spiking after shares had already declined a large amount, the stage was set for a bounce.
Over the first two weeks of February, that's exactly how the action played out. But now, after Friday's key downside reversal, the upside momentum during early this month appears to have collapsed. A close below last week's low of $86.80 could open the gates for a retest of major support near the January/February lows.
In the near term, Gilead bulls should be prepared for lower prices. Once last week's lows give way, selling pressure will likely remain elevated. The end result could be a retest of the $82 area. A drift back down to this level on decreasing trade coupled with a divergent low in the daily MACD indicator would put shares in the very low-risk buy category.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.