Gilead's Powerful Bull Run Is Showing Signs of Exhaustion

NEW YORK (TheStreet) -- Gilead  (GILD) may soon be in need of a pullback.

The biotech stock has been working steadily higher in a tight bull channel pattern since early May. Earlier this month, the stock moved past its 2014 peak, but bullish interest this week has tailed off. With shares near an overbought reading, a retest of the October 2014 high now appears likely. For patient bulls, this would offer a much lower-risk entry than chasing the stock above the $123 area.

At yesterday's high, Gilead had gained over 23% from its May 7 low. During this impressive run, the stock has taken out numerous key levels. In the early stages of the rally, Gilead moved past last December's spike high at $109.50. This was a major level put in the day before shares took a massive hit on news of fresh competition for its hepatitis C treatment. The stock dove 14% after a huge downside gap on the open.

The next session saw another massive selling wave that pushed shares well below the 200-day moving average. Gilead quickly recovered but remained in a tight consolidation until the May rally took out the December high. A few weeks later, Gilead moved past its 2014 peak and into new all-time-high territory.

This week, the stock has reached new highs again, but momentum is clearly fading. Upside trade has been well below average, indicating a reluctance by investors to keep bidding for shares at higher prices. A healthy pullback will likely follow a close below the lower band of the stock's eight-week bull channel. The stock appears headed for that result at mid-day.

The initial layer of support for Gilead is the 2014 high at $116.85. A deeper pullback would offer a much lower-risk entry. Support between the May high at  $113.50 and the early June high at $115 includes the a one-third retracement level of the May bull run. Patient Gilead bulls should look to put money to work there.

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At the time of publication, Morrow had no positions in the stocks mentioned.

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