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Few sectors have struggled as much as the biotech sector over the last nine months. After seeing the sector come under scrutiny for pricing practices last summer, along with the pharmaceutical sector, the biotech index has fallen 34% since last June.
Very few stocks within the biotech sector have avoided the fall as it seems to be a case of guilt by association. Almost all biotech stocks are down over the last nine months.
One company that has fared slightly better than the overall sector is Gilead Sciences (NASDAQ: GILD). Gilead Sciences stock is down 25.3% since last June and it has rallied a little over the last month. Unfortunately, I don’t look for that rally to continue.
A trend channel has formed on Gilead’s chart that goes back to the stock’s peak last June and connects with the highs from last fall. The upper rail of that channel is currently residing right around $96 with the stock currently trading in the $92.50 range. We also see on the daily chart that the stock was recently in overbought territory based on the daily stochastic readings, but the stochastic lines just made a bearish crossover.
Turning our attention to the weekly chart, we get a better look at the trend channel and how it fits with the last few years of stock prices. Interestingly, where we saw an overbought status on the daily chart, on the weekly chart we see that the stock was recently in oversold territory based on both the 10-week RSI and the weekly stochastic readings.
Seeing the 10-week RSI in oversold territory is quite the unique occurrence as the recent trip below the 30 mark is the first time since the summer of 2010 that Gilead has had its 10-week RSI below 30. The weekly stochastic readings have only been in oversold territory twice in the last five years, so that is an unusual event for Gilead as well.
In addition to the bearish picture presented by the trend channel and the overbought status on the daily chart, the sentiment toward Gilead Sciences stock is rather optimistic. The current short interest ratio is only 2.39 and 17 of the 24 analysts following the stock rank it as a “buy” with the other seven ranking it as a “hold.”
I would look to make a bearish play on Gilead, but I think I would wait to see if the stock gets closer to the upper rail. I would like to sell the stock in the $95 range with a down-side target in the $80 range. By selling in the $95 range, I would also be able to use the 52-week moving average as a stop-loss point without experiencing too much of a loss if I am wrong. The 52-week moving average is currently at $102.50 and is moving down.
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