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Drugs and Drug Dispensers

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Stocks have settled into negative territory, with networking, Internet, and insurance stocks doing the worst. The only sectors that are in positive territory have something to do with curing ills.

Pharmaceutical Index Daily Chart

It's not surprising that the Pharmaceutical Index (DRG.X) is holding up better today. Drug stocks have been relatively stronger than the S&P 500 since July, and have yet to give up more than 50% of their April to May gains. But last week DRG did drop below the 38.2% retracement, as well as the five-month up trend. The Pharmaceutical Index is trying to rectify that today, but the old up trend is acting as resistance, as well as the 50- day moving average. The stochastic oscillator is turning up, but will that be enough to push DRG through the downtrend? It hasn't been able to in eight months.

S&P Health Care Index Daily Chart

The S&P Healthcare Index (HCX.X) went on a five-day slide last week, but found support at the 38.2% retracement level. Yesterday's move came up short of the 50-day moving average, but that has been taken out today. HCX may be able to bounce to the August 24th high and 200-day moving average at 833, but have trouble moving higher than that.

While I've patiently waiting for a bounce to short, shorting the strongest sectors isn't what I had in mind.

Jeffrey Canavan
Assistant Analyst
www.premierinvestor.net

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