Want to see clearly? Then get rid of the prices. Here’s how you can get clarity on Gilead (GILD) (May 22, 2015)
IBB GILD DJ-20 GILD
I want to look at Gilead ( NASDAQ:GILD ) but first I want to start with biotech. I’m really liking the way this sector is consolidating. I’ve mentioned before that it’s been concerning that you get this big, what I think is a blow-off top there, and then what turns out to be a lower high followed by a lower low. So that’s a problem. We can’t say that this is a lower high because this hasn’t rolled over, so we don’t know if it’s a lower high or maybe it just stopped trading because it was Friday. And then ultimately the index moves higher, so at least we know that the index has not cracked.
Biotech is really like the antithesis of the stock market, that’s not the right term, but what I mean is it’s not really that strongly correlated. It doesn’t have to be because economics “shmeconomics,” but then I repeat myself. Biotech doesn’t trade according to economic cycles because it’s just immune to that, pardon the pun, as far as immunities. So look, this is strong so I want to look at Gilead ( NASDAQ:GILD ). Gilead ( NASDAQ:GILD ) had come out of this squeeze, this is a stock, here it just looks really, really choppy but when you zoom out, like I have done here, everything just kind of gets a little clearer.
We’ve got this drift down here, that kind of pinch, and since this time we’ve been getting higher lows and higher highs. Now, the reason I thought this was important is because typical volatility squeeze, at least the way I do them, is a one, two, three phase thing. Like lets say, this isn’t quite correct because the actual squeeze was back here, but I’m looking at this. Say here’s the squeeze, phase one is the breakout, phase two is the pullback to test the breakout, see whether there’s really buyers there, and then phase three is the follow-through where the stock ultimately hits a new high.
Well that’s what we’re getting now on Gilead ( NASDAQ:GILD ), we’re getting this stock that’s hitting a new high relative to this last one, 115.00 I think is just around the corner. If this stock starts trading above 115.00 then this is what this chart is going to look like; you’re going to see one big long consolidation here. Suddenly this stock is not going to look overextended, instead it’s going to look like it just came out of this big long consolidation phase. Bam! Now we’re starting the next leg higher; the stock had been right around the 50 and the 200-day moving average.
That’s the configuration that we want, that’s exactly the configuration that we want. We can even really simplify it here, lets do this; here, I just took the price away, look at this thing of beauty here. And by the way, I do this actually more often than I’ll admit, if I want to really see what’s going on I just get rid of the price. It’s like the one thing that everybody looks at; I need to get rid of it in order to see what’s really going on. Look at the divergence between the 50 and the 200-day moving average. Then the convergence, it comes all the way to touch together,
Now, if you look at the Bollinger Bands, you’ll see that they’re drifting higher along with the 20-day moving average. So you really don’t even hardly need to look at the price in order to see what’s happening. By the way isn’t this kind of cool? This is one big long period of consolidation, volatility squeeze, now we’re coming out to the upside. Have you ever seen anything so beautiful, other than of course your wife or your children? Now, how about this one, this is the opposite. What is this? The transports, ( DJ-20 ), this is known as a bad thing because the 50-day moving average is starting to drift down, you don’t even have to look at the price to see that.
By the way, you look at this stuff and you can pretty much tell by the way the 20-day moving average is zigging around, and it’s continually staying below the 50-day moving average. You can pretty much know, if you look at this kind of stuff long enough, that you’re getting lower highs and lower lows, because that’s what it takes to make these moving averages look like this. So between this one and that one, which do you want to own? I know which one I want to own and it would be Gilead ( NASDAQ:GILD ).
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