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Exhaustion, now breakaway for Pfizer

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After being one of the bigger under performers in the drug group in recent years, today's trade in Pfizer (NYSE:PFE) $36.23 +4.71% looks to have bulls coming back to the stock and this bar chart pattern along with Pfizer's point and figure chart signals a longer-term change of fortune for this once-favorite stock among drug sector bulls.

Pfizer (PFE) - Daily Chart

Bullish longer-term technicals look to be unfolding in today's session for Pfizer, not only from the Point and Figure chart, but the bar chart too. In our June 08, 2003 "Ask the Analyst" column we discussed the "breakaway, running and exhaustion" gaps, and when I look at the bar chart of PFE, it certainly gives the look that today's gap higher on just over 26.8 million shares has the stock looking to trigger a "break away gap." I'm also noting what may have been an "exhaustion" gap back in July of last year as the last bit of "bad news" was more than some bulls could stomach. With a nice 13-month base having formed, shares of PFE look bullish longer-term. LEAPS options traders/investors might look at the January 2005 calls (ZPEAG), which are offered $5.00.

Another name in the Drug sector I made note of yesterday was Dow component Merck (NYSE:MRK) $62.39 +2.61%, when the stock triggered a triple-top buy signal at $61.00 and was breaking to a 52-week high. An old "favorite" of the drug sector and top performer last year on the NYSE has Forest Labs (NYSE:FRX) $61.11 +1.93% setting another all-time high in today's trade after generating a double-top buy signal earlier this month at $53 (current bullish vertical count growing to $88).

I'll admit, as will others, that the recent market activity seems to have some traders wondering, "is this market on drugs?" With some of the action I'm seeing and some VERY bullish longer-term vertical counts for stocks in the drug sector, I think the answer may well be yes, with warranted bullish exposure to the group.

Based on technicals of the three stocks mentioned above PFE, MRK and FRX, I prefer MRK at this point as it is breaking from consolidation support.

The Gold/Silver Index (XAU.X) 81.69 +2.92% as well as the Amex Gold Bugs Index ($HUI.X) 155.21, which at 155.00 just broke to a 52-week high certainly looks to be getting squeezed higher by some extensive short-covering today as discussed in prior index trader wraps. The Drug Index (DRG.X) 347.73 +2.4% is today's second biggest sector winner.

Current trade has the Dow Industrials (INDU) 9,335 +0.17% now holding a 16-point gain, the broader S&P 500 Index (SPX.X) 1,013 +0.29% back near this morning's opening highs of 1,014, while earlier mixed technology sector action has turned more modestly positive with the NASDAQ-100 Index (NDX.X) 1,242 +0.03% back in fractionally positive territory after a morning decline that found support at WEEKLY S1 of 1,230.50, which a morning low of 1,229.73.

As the session progresses, we've seen a slight firming from the markets internals from the 11:00 AM EST mark. The NYSE currently shows decliners still outnumbering advancers, but at a narrowing 17:14 margins (11:00 was 17:12) with 316 stocks at new highs and 2 stocks at new lows (11:00 was 248:2). NASDAQ advance/decline breadth has gotten back to even at 15:15 (11:00 was negative at 16:11) with 216 stocks trading new highs and 2 stocks at new lows (11:00 167:2).

Jeff Bailey

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