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Drug Stocks

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Stocks are moving a little more than yesterday, but still nothing stellar. The Dow is up 14, and the Nasdaq is down 14. Oil Service is the only sector jumping out of the gate, up 2.44%. The Internet and software sectors look like the tech laggards this morning, thanks primarily to AOL, eBay, Veritas, and Peoplesoft. Drug stocks are stuck in the middle.

Pharmaceutical Index Daily Chart

Repeat after me, (fill in the blank) is trying to move higher, but is stuck at resistance. It seems like any every sector that is trying to rally is dealing with various points of resistance that it can't fight through. The Pharmaceutical Index (DRG.X) has managed to claw its way through the 50-day moving average, and 50% retracement level, but is stuck at the 7-month downtrend. Even if the Pharmaceutical can look past its oversold status, its reward would most likely be to fall into a trading range between 397 and 420 like it has in the past. On a relative strength basis, that's been better than the S&P 500 has been doing over the past month.

Merck Daily Chart

Merck (MRK) is the stock that is trying to lead the group. Merck had consolidated right at the rim of a cup with handle formation, before moving through the 50-dma, 7-month downtrend. Today the stock is trying to take out the 50% retracement level at $70.38. Volume has been less than impressive on this recent move, which could limit further upside. Also limiting any further advances is the June congestion area between $71 and $75. The downside only looks like a $2 drop to support at $68, so right now Merck doesn't look like a good short on long candidate.

Jeffrey Canavan
Assistant Analyst

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