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Daily Stock Chart Analysis: GlaxoSmithKline Stock (NYSE: GSK)

Pharmaceutical giant GlaxoSmithKline (NYSE: GSK) caught my attention last night as the stock has formed an island bottom. This pattern is a reliable reversal sign in and of itself, but there are several other factors that lead me to believe that GSK is heading higher in the coming weeks.

Looking at the daily chart, we see that the stock has been in an uptrend for the last six months and it just bounced off the trendline connecting the lows. I highlighted the island bottom as well. An island bottom occurs when a stock gaps down and the turns around and gaps higher. This particular island bottom happened in one day, but that doesn’t have to be the case.

glaxosmithkline-stock-chart

The weekly chart also shows another layer of support via the 52-week moving average. Two support levels and a bullish pattern make for a strong technical outlook.

glaxosmithkline

GlaxoSmithKline stock isn’t necessarily a quick trade. The stock doesn’t move fast and isn’t a high flying tech stock with wild gyrations. It is more of a slow and steady income stock. The company pays $3.00 in annual dividends for a yield of 5.7% at the present price.

From a fundamental perspective, GlaxoSmithKline stock is well above average with an average EPS growth rate of 29% over the last three years. The company also boasts a Return on Equity of 81% at present.

The sentiment indicators present an interesting picture. The company only has five analysts following it which I find to be very surprising for a company of its size. Of the five analysts following the stock, only one rates it a “buy” while the other four all rate it as a “hold”.

Most times in this space I will be giving you suggestions for investments that will move quickly in one direction or the other. In this case, the suggestion is for a long-term investment in GSK. There is significant upside for the stock and a healthy yield as well. I would look to buy GSK anywhere below the $53 level and look to hold it for at least a year. A close below the 52-week moving average would be concerning for a long trade, but I would give it a little room with an 8% stop-loss. Given the stocks proximity to its 52-week moving average, it would only take a decline of a few percentage points to close below the trendline. However, when you look at the last three years on the chart, you can see that the stock hasn’t been more than a few percent below its 52-week moving average. The 8% stop-loss gives the trade enough to work properly without getting stopped out before it has a chance to play out.

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