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Small Reversal

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The markets have turned around and moved into positive territory, led by semiconductors and retailers, both up over 1 percent now. Software and Internets have also reversed their negative ways, and are now in positive territory. The Networking Index is still down 1.60 percent, but well off its lows. The Biotechnology Index still resides in negative territory, but the Pharmaceutical Index is up 0.80 percent on news of Merck's (MRK) new drug Fluoxetine.

Merck Daily Chart

Fluoxetine is the generic version of Eli Lilly's Prozac, and Merck-Medco, Merck's pharmacy benefit unit, has persuaded doctors to change 15,000 to 20,000 prescriptions to their generic version of Prozac. Express Scripts, with 47 million members, is reported to have convinced 75 percent of doctors to switch from Prozac to Fluoxetine. The reports have shares of Merck up 92 cents to $70.05, but the stock has been unable to crack resistance at $70.38 for the past week. This is the 50% retracement of the May-July decline, as well as the bottom of a big gap that formed on June 22nd. Should Merck fail to fill this gap, a drop to $68 or $65 could be in future.

Eli Lilly Daily Chart

Eli Lilly (LLY) is unaffected by the news, and is up 90 cents to $80.70. After moving above the 50-day moving average, Lilly is now trying to crack the yearlong downtrend. Adding to that resistance is the 38.2% retracement of the December to March decline. Throw in the January congestion zone and the 200-day moving average, and it's hard to see Eli Lilly moving higher to $83.60. A pullback to $76.70 or $74 looks more likely.

Jeffrey Canavan
Assistant Analyst

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