Even if you don't use it in your stock-picking activities, if you have even the slightest amount of appreciation for technical analysis, Gilead Sciences, Inc. (NASDAQ:GILD) is a terrifying stock to own now. GILD shares have not only fallen out of a long-term bullish channel, but as of today have crossed under an all-important floor. If history is any clue, this stock just passed the bearish point of no return.
Yes, this is the same Gilead that makes several HIV/AIDS therapies like Truvada, as well as a handful of hepatitis drugs. And yes, this is the same Gilead Sciences that have pumped up its top line for ten straight years, and turned a profit in all but one of them (and GILD was still profitable on an operating basis that one off year).
The problem is, this is the same Gilead that has watched its stock rally at a far faster pace than its sales or earnings have since 2012, and reality has finally caught up with the stock. From here - even with the 21% pullback since late February - the stock's still priced at a frothy trailing P/E of 37.4. The pros expect the company to more than double (nearly triple, actually) per-share earnings by 2015, with the ramp-up starting this year. That big ramp-up, however, was based on the assumption that a key drug would be more marketable than it now seems to be.
Be that as it may, while sales and earnings could still theoretically blow the roof off between now and the end of 2015, this may be a case where onlookers trust that the market knows how this well all end for Gilead, and is voicing that opinion via the stock. Were it just a couple of days, or even a couple of weeks, of volatility, we could dismiss it. That's not what this is, however. GILD has been tumbling for nearly a month and a half, and decidedly fell out of a very long-term uptrend. This is a paradigm shift, for the worst.
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That being said, as if the fundamental concerns weren't enough, Gilead Sciences, Inc. shares have fallen under some critical technical levels. Specifically, with today's low of $67.31, GILD has not only fallen under the late-March low of $67.63, but it's also broken under the key 200-day moving average line (green) for the first times since 2011.
To really put this recent weakness in perspective, however, an investor has to look at a weekly chart of Gilead. It's here we can see just how sharp - and how decisive - the downside reversal was, and is. The pullback could be just as rapid and big as the runup was, especially now that the market has watched shares move under any meaningful floor.
Bottom line? GILD brings a lot more risk than reward to the table right now.
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