CISCO AND CIENA PULL TECHS LOWER -- MERCK IS DOW'S STRONGEST STOCK AS DRUGS RISE -- AVON PRODUCTS JUMPS AGAIN -- DEFENSIVE ROTATIONS CONTINUE
CISCO AND CIENA TUMBLE... Cisco is the most actively-traded stock today and it's falling heavily. Chart 1 shows the tech bellwether gapping under its 50-day moving average in morning trading. In addtion, it's 14-day RSI line has fallen under 50 for the first time in three months which suggests that short-term momentum has turned lower. The daily MACD lines are also falling. Because of its size, the fall in Cisco is having an especially negative impact on the technology sector and the Nasdaq market. On a percentage basis, Ciena has fallen twice as hard as Cisco and has lost 15% today. CIEN has gapped all the way down to its 200-day moving average.
Chart 1
Chart 2
DRUG INDEX STILL MOVING UP... I've talked a lot lately about rotation out of technology stocks into healthcare stocks and drugs in particular. That's why it's no surprise to see drug stocks gaining ground today as the techs drop. The AMEX Pharmaceutical Index (DRG) is trading at the highest level in eight months and is challenging the high reached last June. Notice the upturn in the relative strength line. Among today's drug leaders are Merck (which is the Dow's strongest stock), Johnson & Johnson (which we showed last night) and Pfizer (which we showed on Monday). Chart 4 shows Merck rising to a three-month high today. It's relative strength line shows the drug stock outperforming the Dow since the start of December. That's part of the rotation into defensive groups that I've been writing about.
Chart 3
Chart 4
AVON PRODUCTS JUMPS... We showed the price of Avon Products rising yesterday as part of money flows into defensive consumer staples. Today's jump in AVP shows that pattern continuing. Consumer staples and healtcare are today's strongest groups. That's another sign that the market is turning more defensive. Another sign is the fact that consumer staples are outperforming cyclicals. And the fact that techs and small caps are leading the downside correction.
Chart 5
