Gilead (GILD) is down nearly 12% from the recent high. Here’s how you trade it. (April 28, 2016)
Lets look a Gilead ( NASDAQ:GILD ) today in this video. It’s kind of interesting. Do you think maybe the way this stock was trading before earnings, you think maybe somebody knew something about something? The stock trades down. Here it is into the close, and then it continued lower after they reported earnings. They missed estimates on revenues as well as bottom line earnings, and that’s tough enough. But part of the reason, basically the whole reason, was they had slower sales on their hepatitis C drug. Now remember, this was the drug where they’re going to court with Merck; I should say Merck ( NYSE:MRK ) sued them. And it was ruled that they have to pay Merck ( NYSE:MRK ) 200 million bucks for their part in this drug. Whatever the details were, they don’t really matter because I don’t practice law anymore; and I’m happy about that. But the point is, 200 millions isn’t that big a deal, but the fact that they got slower sales is a big deal. And the reason is, in part, because when you think about what’s happening on the healthcare front, government healthcare, that type thing, all of these plans are essentially going to delay or refuse to COVER patients for this stuff until they really, really need it. Welcome to the future dude, here’s your healthcare. Sorry, you’re not bad enough for us to approve this drug.
So that’s happening here. It’s probably going to continue to happen. That’s, in my view, anyway, kind of the fundamental backdrop for what’s happening here. But up until a few days ago Gilead ( NASDAQ:GILD ) was one of those that just kind of kept going. So many of these other stocks, we can look at Celgene ( NASDAQ:CELG ), were trading sideways. The IBB ( NASDAQ:IBB ), just in general, was trading sideways. And then you have Gilead ( NASDAQ:GILD ), which was really moving nicely. So right now this stock is down, essentially to where it was last month when it was coming out of consolidation. The IBB ( NASDAQ:IBB ) we’re coming up to the present here, the same deal really. So when I’m looking at Gilead ( NASDAQ:GILD ) I see this big pullback here, this is a stock that’s now broken. The 200-day moving average is resistance. The stock is down below the 50-day moving average. But I’m going to tell you something about biotechs, and truer words were never really spoken. The moving averages here, it’s really interesting and all that, it’s interesting that the stock clustered right around the 200 and the 50-day moving average. That’s great. But here’s the deal, the stock has essentially been trading sideways long enough to where this is a function of MATH not trader behavior.
In other words, the stock zigs up, the stock goes down, and up and down, but generally speaking it’s just drifting sideways. So when the average price over the last 50-days, and the average price over the last 200-days is kind of the same, then this is what you’re going to get. Here’s the reason I’m saying this: I don’t really think that it matters that the stock is trading down below the 50-day moving average. I don’t think it matters that the stock came up TO the 50-day moving average and then rolled over. What I think matters is, that the stock was trading up into earnings; earnings were disappointing, and the stock is now trading, basically, right back down to where it was when it brokeout. So what it has really undone is this earnings run. So now what are you going to do? First of all, this stock is not a long-term hold for you. If you want to do that, that’s fine. It’s not a long-term hold. This chart looks a little bit like Apple’s ( NASDAQ:AAPL ) chart used to look, and several other high-fliers that ultimately rolled over. This is NOT a long-term hold for you. But short-term, this is a steep pullback.
What I would suggest doing is, just watch how the stock opens in the morning. If it starts trading and stays trading above the opening print, then you can probably take it for a little bit of a ride. But it would just be, in my view, for a short-term trade. Look what happened at Stamps.com, absolutely no relation to Gilead ( NASDAQ:GILD ) other than that they both have four letters in their tickers. But this is a stock that traded down really low and then ultimately moved up. It moved up almost 10 percent from the open here. And so this was a good day trade. Gilead ( NASDAQ:GILD ) could give you the same type of trade here, the same type of move. Anyway, you can check that out tomorrow. But the main point here is, this stock has been broken for a while. This has been trading differently than other biotech stocks in the IBB ( NASDAQ:IBB ). What this has done is effectively just erased this entire run and it’s right back where it started from. So this would HAVE to be your support level if you’re making this trade.
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