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Frogs leap from "Lilly" pads

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The drug stocks are one of today's equity sectors that are leading gains as the Drug Index (DRG.X) 316.52 +1.36% gets a boost after the newswires reported that Senate Republicans defeated a Democratic amendment to the homeland security bill that would strip provisions that would benefit Eli Lilly (NYSE:LLY) $62.15 +2.93% and Accenture Limited (NYSE:ACN) $18.92 -1.96%.

If you're like me, you're probably wondering what the heck the homeland security bill has to do with these two drug makers and as of right now, I can't find any past news that makes sense. Initial thoughts are that each might manufacture some type of vaccine that might see volume growth should the homeland security bill address the stockpiling of vaccine to prepare for some eventual type of germ warfare. Again, just thinking but will further scour various news sources.

Eli Lilly Chart - $1 box

"Drug bulls" may want to ad shares of LLY to their bullish watch list for a break above $64 as bullish longer-term. While the bullish vertical count of $68 looks rather "unattractive" and limited upside, what catches my eye is this.

In early October (red A), October 2 to be exact, LLY traded $59.00 exactly. If not for that extra penny, the recent long column of X from $56-$65 would have been the bullish vertical count column. That long column of X hints of some major demand that was unleashed as if the MARKET has some type of much higher eventual bullish target for the stock. According to Dorsey/Wright and Associates, their drug sector bullish % (BPDRUG) just achieved the "bull confirmed" status at 44% on 11/07/02. This has me looking at a very early bullish phase underway for the drug sector and gives shares of LLY a more bullish look, which does look to have been building since mid- October.

Accenture Chart - $0.50 & $1 box

I couldn't figure out why ACN was trading bearish while LLY was more bullish on the above news. Not until I pulled up a p/f chart. I can see why some bears may be shorting and some long bulls selling their shares of ACN today as the stock has rallied to past resistance of $19.00. However, with the sector internals improving and now "bull confirmed" I kind of like "drug stocks" as bullish plays considering geopolitical risks, Republicans winning the House and Senate, and anemic economy. Looking for a pullback entry in ACN near $17.00-$17.50, then need a break higher at $19.50. Bears that have been shorting below $19.50 should run for cover on a break higher at $19.50. One way to trade is 1/2 position long on a pullback, then don't give bears any help and round to full on break above $19.50 and target $23- $24, which correlates with bullish vertical count and just under April (red 4) supply.

While waiting for a pullback, that gives us some time to try and research why today's news might be beneficial to LLY and ACN and see if there's some fundamentals to support technicals which look to be improving to the bullish side.

Jeff Bailey

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