DRUGS LEAD QUIET MARKET ADVANCE -- OIL FALLS UNDER $30 -- WAR APPEARS IMMINENT
PHARMACEUTICALS ADVANCE... Drug stocks led the market higher in the face of an imminent breakout of war. Chart 1 shows the AMEX Pharmaceutical Index since last October. The fact that the latest decline to 275 held at its September low -- which is well above the October low -- is a demonstration of relative strength. The RS line below chart (which plots the DRG vs. the S&P 500) also shows that drugs have held up better than the rest of the market so far this year. Chart 2 shows the DRG closing over its 200-day average today. Its 2% gain makes it the day's strongest market group. The 14-day RSI line has exeeded the 50 level, which is a sign of strength; and the daily MACD lines are bullish.
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DRUG LEADERS... Pfizer and Johnson & Johnson happen to be the two biggest stocks in the DRG Index (with a combined weight of 34%). They also happen to have two of the strongest chart patterns. Pharmacia has a much smaller weight of 5%, but is also one of the stronger drug performers. JNJ is the only one of the three that didn't show an increase in volume today.
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GE LEADS DOW HIGHER... The Dow picked up another 71 points today (although on lighter volume) and appears headed toward its 200-day moving average. One of its big bellwethers -- GE -- has already cleared that resistance barrier. The fact that consumer staples (like drugs) led today's advance may hint at a little caution creeping into the markets on the eve of a potential war. Even so, the short-term trend of the major averages is still upward. Money continues to flow into stocks from the bond market.
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BONDS YIELDS CLEAR 50-DAY AVERAGE... We've been charting the rebound in bond yields off their October lows. We take that as a positive sign for stocks, since it means that money is coming out of bonds (which fall when yields rise). We've been encouraged by the ability of the major stock averages to rise back over their 50-day averages. Bond yields have now done the same. Nearby oil prices tumbled under $30 dollars today -- another symptom of a more pessimistic attitude on bonds and a more optimistic view on stocks.
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TIME FOR REFLECTION... From all indications, the outbreak of war is imminent. It seems almost callous to be writing about the financial market at such a dangerous moment. But that is our job. Whatever may happen to the markets, our thoughts go out to all who are now in harm's way. The recent rally in stocks -- and the tumble in crude oil -- are anticipating a swift (and successful) end to the war. We pray that they're right.
