The Return of the Bio-techs

Highflying bio-tech stocks returned to the forefront this week, after experiencing a substantial decline during most of March and the first half of April. Gilead Sciences (NASDAQ:GILD) tumbled nearly 24% from its high in late February before bouncing last week ahead of its earnings. The stock is now in the process of returning to leadership, which could drive the broader markets for the balance of the spring.

Gilead’s first quarter net profit more than tripled to $2.23B billion, boosted by sales of $2.27 billion for the company’s new blockbuster Hepatitis C pill Sovaldi. The figure beat analysts’ expectations by over $1 billion in what appears to be the biggest ever start for a drug. Gilead’s overall revenues almost doubled to $5 billion and earnings per share of of $1.48 beats by $0.58.

Also in bio-tech news, Allergan (NYSE:AGN) announced Tuesday that it has adopted a poison pill in the guise of a one-year stockholder rights plan following a $47 billion hostile takeover bid from Valeant (NYSE:VRX) and Bill Ackman’s Pershing Square. The plan would prevent Ackman from significantly increasing his 9.7% stake in Allergan and it would stop Valeant from taking its offer directly to shareholders. Allergan’s shares were +0.8% premarket after soaring 15.25% yesterday.

After slicing through initial resistance near the 200-day moving average near 70, the stock is poised to test target resistance near the 50-day moving average at $77. Momentum on the share price is positive as the MACD (moving average convergence divergence) index generated a buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the buy signal.

The RSI, (relative strength index) quickly rebounded from oversold territory and has climbed quickly along with price action, which reflects accelerating positive momentum. The current print of a 52 reading is in the middle of the neutral range.