FINANCIALS AND HEALTHCARE WEIGH ON OVERBOUGHT MARKET
PROFIT-TAKING IN BIOTECHS... Biotechs are one of the day's weakest market groups. The daily chart shows the BTK slipping into a short-term correction. The RSI line is dropping and the MACD lines have turned negative for the first time in two months. Given the steepness of the recent rise, a setback isn't a surprise. A fifty percent retracement of the rally since May would bring the BTK back toward its breakout point near 400. We're not sure if the correction will drop that far, but there should be good buying around that level if it does. The entire healtcare group is weak.
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FOREST LABS PLUNGES... Here's the main reason the healthcare group is so weak today. Forest Labs just recently hit an all-time high. Today it's tumbling on very heavy volume. St. Jude Medical is also being sold in fairly heavy trading. The former leader is heading toward its 50-day moving average. I don't like the breakdown in the RSI line either. That shows loss of upside momentum and a possible change in the short-term trend. Human Genome Sciences is one of the biggest biotech losers. The stock is threatening its 50-day line and previous chart support at 12.5. The RSI line has fallen under 50 and the MACD lines have turned down.
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MORGAN STANLEY LEADS BROKERS DOWN... Some disappointing news from this broker is causing more heavy selling today. The price drop that started yesterday is coming on heavy volume which isn't a good sign. MWD is breaking its 50-day moving averge today. That's not a good sign either. Since brokers are often bellwethers for the entire market, their selling may increase the odds for a pullback in the general market as well.
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GE ALSO FALLING ON VOLUME... Speaking of bellwethers, General Electric is one of the big board's heaviest traders today to the downside. With GE slipping under 30, a retest of its 50-day moving average appears likely. Its short-term indicators are weakening as well. Chart 7 shows that GE fell short of the high reached last August. That underperformance is reflected in its "price relative" line under the chart which shows relative weakness against the Dow. It's the Dow's biggest loser today as well.
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MARKET AVERAGES ARE DOWN... All the market averages are down today. The chart of the S&P 500 is pretty indicative of what we're seeing elswhere. This week's move into a new recovery high hasn't been confirmed by our short-term oscillators. The RSI and stochastics are showing some "negative divergence" from overbought levels. That increases the odds for a short-term pullback -- at least to the 20-day average near 980. Pockets of strength today are in gold, oil, and utilities.
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