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HEAD & SHOULDERS


A Bullish Continuation Pattern For GILD

12/23/08 01:09:08 PM
by Arthur Hill

Gilead Sciences is challenging resistance from a bullish continuation pattern, and a breakout would signal a continuation of the prior surge.

Security:   GILD
Position:   Accumulate

Figure 1 shows Gilead (GILD) challenging resistance around 48 for the fifth time since mid-October. Resistance in this area stems from the 200-day moving average and the October–-December 2008 highs. With multiple pullbacks over the last two months, there is clearly a big supply overhang that the forces of demand need to overcome.

FIGURE 1: GILD, DAILY. Resistance was challenged around 48 for the fifth time since mid-October.
Graphic provided by: TeleChart2007.
 
After a surge in early October, the stock traced out a head & shoulders pattern with neckline resistance at 48. At the post-surge phase, the head & shoulders pattern represents a potentially bullish consolidation. A break above neckline resistance is now needed to signal a continuation higher. Such a breakout would then project further strength toward the August highs.

The move off the December low forged the right shoulder. In addition, this move occurred with a big volume on December 16 (green oval). Expanding volume shows strong buying pressure, and this increases the chances of a breakout at 48. Failure to break out and a move below the December low (support) would be bearish.

FIGURE 2: GILD, HOURLY. Note the failling wedge breakout.
Graphic provided by: TeleChart2007.
 
Figure 2 shows 60-minute bars with a falling wedge breakout. By turning to a shorter time frame, we can also attempt to handicap the breakout potential on the daily chart. In other words, a short-term breakout or bullish setup increases the chances of success for the medium term. GILD advanced, corrected with a wedge, and broke wedge resistance with a strong move. This move signals a continuation of the prior advance and further increases the chances of a breakout on the daily chart.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
Company: TDTrader.com
Address: Willem Geetsstraat 17
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Website: www.tdtrader.com
E-mail address: arthurh@tdtrader.com

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Date: 12/30/08Rank: 5Comment: 
Date: 12/30/08Rank: 5Comment: This clear explanation can be easily ompared with price activity now and in the New Year to increase one s technical analysis skills and to test one s trading system and actions in real-time.
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