a few days before christmas, stock prices of gilead sciences (NASDAQ: $GILD) tumbled on news that competitor pharma company abbvie (NYSE: $ABBV) has inked exclusive deals with express scripts holdings (NASDAQ: $ESRX) on hepatitis C regimens to be claimed by scripts's network of patients. the movement was drastic & bleeding red.
the lessons to be learned from gilead's stunning drop from $110 to $86 in just two days can be summarized into two: have a definite price target, and know your psychologic support. in this case, gilead's immediate support came at around $85, as this was the trough of the two previous cycles this year.
another lesson i learned from this movement was, even if dangerous, averaging down can still be profitable. but i was just lucky maybe. there was a 50% chance that the downward momentum will break the $85 barrier, but i reckon a movement of $10 (from 95 down to 85) down in just two hours is crazy and big institutional investors would not let that happen. thus, i bought a lot of it at around $86, and it surely went up from there.
as for gilead's future, i'm pretty sure that the competitor deal will hardly make a dent on gilead's sales, since firstly the deal only concerns scripts's market in the US, and not with europe or elsewhere, and there is a clause in the deal that patients can still use gilead's hepC drug if the competitor's won't work on a case-to-case basis. so obviously it was an over-reaction, and honestly $85 for this pharma giant might be a good bargain; but i'll leave it to you to make your own informed guesses.