DRUGS BOUNCE -- GOLD AND CRB HIT NEW HIGHS
DRUGS BOUNCE SHARPLY... Drug stocks led an impressive bounce in the healthcare sector. Chart 1 shows the AMEX Pharmaceutical Index jumping to a two-month high. The DRG is also back over its key moving average lines. The relative strength line under the chart has been dropping for the last six months, which reflects underperformance. This week's uptick may be an early hint that money is starting to flow into this lagging group. Two of the top drug gainers today were Abbott Labs and Eli Lilly.
Chart 1
DRUG LEADERS... Charts 2 and 3 show the strong price and volume pattern in Abbott Labs and Lilly. ABT jumped to the highest level in two months on very strong volume. A decisive close over 44 would be an even more impressive sign of strength. Lilly has already climbed to a four-month high and is the stronger of the two stocks. The volume bars also reveal a bullish pattern. You'll see that the biggest volume bars over the past two months are green. That means that the biggest volume has been occurring on rising prices. That's bullish chart action.
Chart 2
Chart 3
GOLD AND CRB HIT NEW HIGHS... New signs of weakness in the U.S. dollar this week has pushed gold to the highest level in seven years. Despite a minor dip today, bullion now appears headed for a test of psychological resistance in the $400-$415 region. The CRB Index has also broken out. The CRB Index has also broken out to the highest level in seven years. It gained ground again today with eleven commodities closing higher. Energy markets are among today's biggest gainers. The CRB is also headed for a challenge of its 1996 high.
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NYSE HITS NEW HIGH... Most of the major market averages spent the day recovering from early losses and closed with minor losses. The one exception was the NYSE Composite Index which rose to a new high. By contrast, the Nasdaq Composite lost almost six points. While it's encouraging to see the NYSE hitting new highs, the market usually does better when the Nasdaq is leading it higher. In today's trading, technology was the main laggard. [By contrast, Wednesday's impressive bounce was led by the Nasdaq]. The last chart plots a ratio of the Nasdaq to the NYSE. The ratio is still locked in a trading range. The direction of that ratio could tell us a lot about the direction of the market. Most of today's gainers were in defensive groups like energy and healthcare. Charts 6 and 7 show both stock averages bouncing of their 20-day moving averages. That line has now become the first line of defense below the market.
Chart 6
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