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Good 'Ol fashion profit taking

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Today's action in the stock market looks to be that of profit taking. A quick review of the Dow Industrials and its components give credence to this theory.

Today's 4% decline in shares of Hewlett Packard (NYSE:HWP) stands out as today's "big loser," but traders that were paying attention yesterday saw that stock rise substantially and today looks to be that of profit taking by short-term traders. When we begin looking at other "losers" in the group, they too have had very nice runs in recent sessions.

If there were one stock in the Dow Industrials that I would be very careful of it would have to be shares of Merck (NYSE:MRK). Here's a stock that could end up being one of the laggards for the Dow for sometime. Often times in a new bull market, which I think we're are just entering, the defensive drug stocks just don't seem to gather institutional focus on the buy side. They've usually had their run during the economic slowdown and broader market pullback and have either been rotated out of, or just aren't attracting the bulk of new money coming into the market. That doesn't mean a drug stock won't move higher with the broader market, but often times it under performs on the upside.

In all, this might actually be something for broader market bulls to be looking for. I get worried for the broader market when the drug stocks begin outperforming to the upside. That often times signals rotation out of economic growth stocks and back into more defensive stocks. That's exactly what we saw happen in April of 2000 and now we simply look for divergence.

Qualcom Update:

Play update for PremierMarkets.com. Today in the hot list, PremierMarkets.com decided it in the best interest of a trader running his/her portfolio to part ways with 1/2 position of that profiled bullish in shares of QCOM on 5/16/01 at $63 and reduce some exposure of their capital when the stock traded $64.95. PremierMarkets.com is still following the QCOM trade from 05/16 at $63 as bullish, but only as 1/2 position. We continue to suggest a stop on the stock at $54.75 and remain longer-term bullish.

Jeff Bailey
Senior Market Technician

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