Expect Choppy Mkt Action for a While; GILD Looks Attractive
Well, it’s been a wild few weeks and a retest of last week’s lows appears underway. In last week’s note, I discussed the potential for an oversold bounce developing from support at 2855 on the S&P 500 index (SPX), coinciding with the 4Q19 lows and a 50% retracement of the 12/2018-02/ 2020 rally. One week later, the SPX is in the process of retesting that important support level.
I’d like to be able to say that a successful retest/bottom is taking place, but there is insufficient technical evidence. While my expectation is the SPX will attempt to establish a secondary low in the coming week, I think a break below 2855 is likely to see a further move down toward next support at the August 2019 lows of 2822.
At that point, the next important support band is the level between the June 2019 lows, 2728, and just below the 62% retracement, 2746. Lastly, the rising 200-week moving average, currently around 2633, remains an important long-term support level that has historically defined important cycle lows.
More importantly, the intermediate-term backdrop suggests markets are will remain volatile well into 2Q. Longer term, however, the weekly momentum indicators remain negative after peaking at overbought levels in early February and are unlikely to become oversold or bottom until well into, and possibly through 2Q. As I noted here the past few weeks, investors should brace for months of choppy action, before the market establishes a more durable bottoming pattern to redeploy longer-term capital.
Healthcare company Gilead (GILD) looks to be early in a long-term bearish to bullish trend reversal. As concerns of a recession fueled by a potential global pandemic intensify, the healthcare sector should continue to build on recent gains. Recent shifts in the Democratic Party race have been an additional tailwind.
Many smaller-cap speculative biotechs have surged for obvious reasons concerning Covid-19, raising the technical question of whether it is too late to build exposure to the group. GILD remains an attractive long idea given it is reversing multi-year absolute and relative performance downtrends. For more see page 11.
Long-term momentum, tracking two to four year shifts, has bottomed and is building to the upside as GILD breaks out above its 2019 trading range. The bottom line is GILD, which has a $97 billion market cap, 3.5% dividend yield and 12 times forward P/E, is early in a longer-term bearish to bullish reversal. I recommend accumulating GILD at current levels and on near-term pullbacks.
