The next break-out candidate: GILD

By Dr. Duru written for One-Twenty

May 23, 2007

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When I see a theme continue to pop up on my screen, I have to run with it. I have now written about Amazon (AMZN) and Tele Norte (TNE) as nice upside break-out action. This time, I get to write about a position I am already in: Gilead Sciences (GILD). (Read disclaimer here).

Over the past few years, I have been impressed with Gilead's corporate management and the science that it does. But I have only recently looked into its publicly traded stock. My latest foray is an attempt to play what appears to be an upside break-out in the making. Of the three scenarious I have now covered, GILD is probably the strongest long-term case. GILD has had almost non-stop positive momentum for about 13 years! The strong up-trend is unmistakable. Newsflow has recently been positive again as the stock has held up even as sellers have descended upon a lot of formerly hot bio-tech names. Now, the stock has consolidated for about a month after last breaking out in late April with a high-volume move. On-balance volume (OBV) has held steady during this consolidation. I would prefer to see OBV put on some kind of upward momentum: the case for accumulation would be stronger. Because of that one small detraction, I am participating with call options to cap the total potential loss no matter what downside surprises may come. The 200 DMA is 15% below current levels and that would be about the kind of correction we might expect if sellers got beef all of the sudden. However, unless the news on such a move were truly catastrophic, I would become an aggressive buyer on such a dip.

Regardless, as always, be careful out there. And hopefully I (we?) will profit off this potential break-out.

GILD daily chart

DR. DURU®, 2007