The American biopharmaceutical company that focuses on researching and developing antiviral drugs used in the treatment of HIV, hepatitis B, hepatitis C, and influenza, including Harvoni and Sovaldi, Gilead Sciences, Inc. (NASDAQ: GILD) seems to be gearing up for a surge as per its latest charts. This was one of the stocks we had flagged for a possible breakout.
Bullish Indications
#1 Downtrend Channel Breakout: As you can see from the daily chart, the stock has been trading within a downtrend channel during the past few weeks. This is marked in the daily chart in purple color lines. Currently, the stock has broken out of the channel. A breakout from the channel typically causes the stock to move higher.
Daily Chart – GILD
#2 Trading above MAs: The price is currently above its short-term moving average of 50-day SMA as well as the longer-time moving average of 200-day SMA. This implies a possible bullish bias for the stock.
#3 Bullish Stoch: The %K line is currently above the %D line of the stochastic in the daily chart, indicating possible bullishness.
#4 Bullish ADX and DI: The ADX line has currently moved up from below the –DI line and the +DI line. The +DI line and the ADX line is also currently above the –DI line. This indicates possible bullishness.
#5 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart. This indicates possible bullishness.
#6 Formation of a Consolidation Area: The weekly chart shows that the stock was trading within a consolidation area for the past several months. This is marked in the chart as a pink color rectangle. Currently, the stock is bouncing higher after reaching the lower rail of the consolidation area. This is a possible bullish sign.
Weekly Chart – GILD
#7 MACD Above Signal Line: In the weekly chart, the MACD line (light blue color) is currently above the MACD signal line (orange color) which is typically considered bullish.
#8 Bullish Stoch: The %K line is currently above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level of GILD is above Friday’s close. This translates to a price of around $69.30.
TP: Our target prices are $75 and $85 in the next 2- 5 months.
SL: To limit risk, place a stop loss near $65.50. Note that this stop loss is on a closing basis.
Our target potential upside is 8% to 23% in the next 3-5 months.
For a risk of $3.80, the target rewards are $5.70 and $15.70. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 4x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the channel breakout level. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in its sector.
Happy Trading!
Tara
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