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Healthcare Breakouts Abound

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As could be expected on a day when the Dow is rallying by more than 200 points, most sector indexes are trading in the green. Massive short-covering has the XAL.X (airlines) leading the way higher, along with large gains in the GSO.X (software) and SOX.X (semiconductors). Those rallies are certainly impressive...but will they last? Scrolling through the daily charts of the sector indices gives us some insight into which groups might see some sustained buying.

Most indexes roughly reflect the Dow Jones - moving higher over the past two sessions but still well under the relative lows. However, there are a handful of sectors setting new multi-month highs today. Is there a common thread among those "breakout" sectors? You bet! They're all healthcare-related.

Over the past week we had noticed relative strength in the HMO.X (health provider) and RXH.X (health care) indices. Contrary to the broader market, those groups were not hit with heavy selling during the final week of March.

Annotated daily chart - HMO.X:

Unitedhealth Group (UNH), currently on the OI call list, has ridden the sector strength to new highs. We're also seeing strong upward momentum in Anthem (ATH) and Wellpoint (WLP).

Annotated daily chart - DRG.X

The breakout in the DRG.X is being driven by several of the big-cap pharmaceutical stocks. Pfizer (PFE), Merck (MRK), Eli Lilly (LLY), and Abbott (ABT) all traded to fresh relative highs today. Other drug stocks are getting in on the act as well. FRX (frequently discussed by Jeff Bailey on the Market Monitor) and Barr Labs (BRL) both hit all-time highs this morning.

Not one to be left behind, the BTK.K biotech index has also popped its head above the recent highs.

Annotated daily chart - BTK.X:

The sector is moving higher on upside earnings guidance from Biogen (BGEN). Biotech behemoth Amgen (AMGN) is also contributing to the bullishness with a 1.6% gain. The stock is trading at levels not seen since April of last year. Shareholders will now be challenged with psychological resistance at $60.00.

Both the Dow and NASDAQ are hovering near the session highs as we move into the final hour of trading. The steep market rallies on March 13th and March 17th both saw steady buying ahead of the closing bell. However, uncertainty surrounding the looming Battle of Baghdad might prevent a repeat performance this afternoon.

Kent Barton

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