Too Much Optimism for Gilead Sciences?

First I hope you had a good Christmas after the worst year economically that all of us have ever experienced in our lifetimes. I wish I could share some good news for the equity sector with you, but my chart work is not showing anything good just yet. I’m mostly short, and have been for the last three weeks with decent returns. I am seeing some upside in selected stocks but not that many compared to the short sells. I would be leaning toward the small caps for any upside surprises possibly. I was thinking the Santa Claus rally might materialize but it didn’t that much if at all.

Scanning the stock charts for some low-risk high-reward trade setups early Monday morning, I’ve zeroed in on a short-sell candidate in the biotechnology sector. I’ve been thinking for quite some time now that healthcare stocks are going to start losing their rich profit margins they’ve been enjoying for quite some time now, and with the change of leadership in the White House, and now with this current economic environment, 2009 could be the time the medical stocks start selling off even more than they have already. In fact I would forecast and predict this year that the healthcare stocks might be the next financial disaster to hit the stock market and economy.

Short-Sell Gilead Sciences (GILD)

• Sell Entry: 49.73 to 51.04
• Stop-Loss: 51.20

Take Profit Areas

• 46.81 to 45.35
• 41.68 to 41.18
• 35.53 to 33.40

Some of My Reasons for Selling Gilead Short

Number one, it's showing a major ABC sell setup with a nice tight stop-loss, making this stock a very low-risk very high-reward short-sell trade if the market proves me right. Two, way too much optimism. I’m reading current articles from other analysts giving Gilead buy recommendations for a variety of reasons. I see no other short recommendations on GILD right now. Jim Cramer on his “Mad Money” TV Show on December 22nd said “I'm recommending Gilead Sciences and will continue to pull the trigger on that one." Cramer has been wrong so many times this year, it might be continued “Easy Mad Money” to take the other side of the trade on his stock picks right now. Three, the market is still heading south in my opinion. Four, the medical sector rich profit margins are going to get squeezed in this economic environment.

Gilead Sciences Company Profile

Gilead Sciences, Inc. (Gilead) is a biopharmaceutical company that discovers, develops and commercializes therapeutics in areas of unmet medical need. The Company has United States and international commercial sales operations, with marketing subsidiaries in Australia, Austria, Canada, France, Germany, Greece, Ireland, Italy, New Zealand, Portugal, Spain, Switzerland, Turkey, the United Kingdom and the United States. Its commercial teams promote Truvada, Viread, Emtriva, Hepsera, AmBisome, Letairis and Flolan through direct field contact with physicians, hospitals, clinics and other healthcare providers. Its corporate partner, Astellas Pharma, Inc. (Astellas), promotes, sells and distributes AmBisome in the United States. In September 2007, it acquired Nycomed Limited, a wholly owned Irish subsidiary of Germany-based pharmaceutical company, Nycomed GmbH.

(Click to enlarge)

Disclosure: Short GILD.

Comments

[lostalot:]

I've lost a lot everywhere but GILD. It's been berry berry good to me. And I'm glad you're wrong about shorting it now. I've been in it for over a decade and have followed it closely. You say Cramer says "buy" which to you means "sell". However, you're overlooking the many other, very accurate, gurus out there who are still long on GILD. You're premature on this one.

2008 Dec 30 01:04 PM

[DannyBoy29:]

I've been long since $46 and loving this stock. It might be due for a pullback but no way should anyone short it. A lot of potential positive catalysts out there. Big Pharma need to beef up their pipeline so there is the potential they will be bought. If Obama wants to send more HIV/AIDS drugs to Africa GILD will do well. I'm not sure where the market goes in 09 but GILD should outperform.

2008 Dec 30 04:18 PM

[gildfan:]

Well, go ahead short this, what ever your charts show. I'm not going to short this stock. This company has a strong cash position and they make the best AIDS drugs on the planet. Maybe not the deepest pipeline, but better than most. I think they'll get up to at last 55$/share this year with some ups and downs as the market fluctuates. They've bounced back fairly nicely from the recent downturn, they're only approx. 5$/share off from where they were this summer, they were down around18$/share in early/mid October.
Unless the unforseen comes up I think this stock will be in the mid 50's by this summer with not alot of chances to short.

2008 Dec 30 04:51 PM

[lostalot:]

On 12/29/09, the 100 day SMA crossed under the 20 day SMA. The last time this occured, on 3/5/08, GILD went up 20+%, over the next 5+ months .

2008 Dec 31 05:21 PM

[Dan Jacome:]

your main reason to short is behavioral, you mention nothing about the fundamentals of the company.

Jan 04 07:54 PM

[Crayon G.:]

What a terribly written article. Is this what passes for Wall Street analysis these days? Like what previous posters said, you simply made some infantile assumptions - Cramer is wrong and day trader technical charts are always right, both foolish assumptions. You made no comment about the fundamentals of Gilead, widely regarded as one of the pillars of biotech, or offer any reasons why it may fall into the 40s and 30s as you claim. You could have said something about its HIV drugs being over-saturated, or upcoming Phase 3 trials that are taking too much time, FDA approval and such, but you didn't even state your case. GILD is not a daytrader's stock like AAPL, and you shouldn't treat it as such, it's beta is far more conservative than other stocks - hold and go long for a long time. Only a moron would short GILD... but alas, these Seeking Alpha dolts are nothing but...

Jan 06 11:28 AM

[Michael Mic...:]

From the looks of the comments here, looks like everyone is long. Good for you, GILD is a great stock to own long-term. Short-term there's always money to be made in the markets and GILD provided that quick fast money. Got stopped out on GILD. The next day re-entered short at 51.34 and excited the trade on last Friday at 47.51 for about a 7% profit. Looks like GILD is on its way back up short-term.

Jan 12 02:11 AM

[decoflair:]

This may be a great long term hold for those of us that are inclined to hold a stock longer than a few days.
However, the insider sales are quite disturbing to me. I find it difficult to think that officers of the company would be dumping such hugh numbers of their shares if they were firm believers in the near term performance of GILD. I will buy on significant pullbacks, though.

Jan 18 08:36 AM