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With the current behavior of the market, we could all use some drugs to calm our nerves.

Pharmaceutical Index Daily Chart

Since April, the Pharmaceutical Index (DRG.X) has continued to trudge higher, setting a series of higher highs and higher lows. The last rally met resistance at 415, and DRG then consolidated between 400 and 406 last week. Today broke that consolidation, and pharmaceuticals are now back above the 200-dma, and look ready to test the 415 resistance level once again.

Forest Labs Daily Chart

Drug manufacture Forest Labs (NYSE:FRX) had been methodically advancing in April, but then caught fire in May. Having run too far too fast, the stock was due to pull back at wait for the moving averages to catch up a little. It did so by giving back 38% of its May gains, but has since regrouped and is moving higher, up $1.81 today. I would like to see a little more volume support than we've seen over the past few days, but FRX could be on its way to testing the previous high at $78.40, with a slight pause around $76. If the Pharmaceutical Index can clear 415, FRX could start to catch fire.

Jeff Canavan
Assistant Analyst
www.premiermarkets.com

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