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Dazed and confused

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While the Semiconductor Index (SOX.X) is getting ready to fall below its previous low, the Pharmaceutical Index (DRG.X) is getting ready to test a previous high. This is just a theory, but I'm guessing drug stocks are up due to overwhelming investor demand for Prozac.

Pharmaceutical Index Daily Chart

The Pharmaceutical Index is get getting ready to complete a cup with handle formation on the daily chart. Even if this pattern completes, DRG has its work cut out for it. Prices have the 50 and 200-day moving average, and two previous highs at 423 and 425 to deal with. I know I sound like a broken record, but I just can't look past all the overhead resistance we face. To buy or fade the pending breakout, that's the $64 question? 5 points of resistance, and only one point of support at 367, the bears still have the upper hand for now.

Merck Daily Chart

Mimicking the Pharmaceutical Index is Merck (MRK). Merck has actually tried to take the lead, and break out of its "bottoming pattern." Prices are stalling at the 50-day moving average, and the volume is atrocious. I'm guessing resistance wins again.

Jeffrey Canavan
Assistant Analyst

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