BIG JUMP IN PHARMACEUTICALS IS PULLING HEALTHCARE SECTOR HIGHER -- JOHNSON & JOHNSON IS STAR OF THE DAY.
HEALTHCARE IS TOP SECTOR... I've been writing recently about the revival in the Healthcare sector. Today it looks like the healthiest part of the market. On Tuesday I showed the Health Care Select Sector SPDR (XLV) closing over its 200-day average for the first time since June, and wrote about its improving relative strength. While the rest of the market is trading down, the XLX is close to a new six-month high. Its RS line continues to rise after moving over its 20-day moving average at the start of the month. Today's big buying is coming from the pharmaceutical group.
Chart 1
DRUG INDEX BREAKS OUT... On December 2 I showed the Pharmaceutical Index closing over its 50-day average and wrote about the possibility of a new upturn in the lagging drug group (see blue circle). Today's explosive upmove in the DRG puts it at a new three-month high and up against its 200-day moving average. That's a pretty impressive turn of events from a market laggard to a market leader. One of the easiest ways to participate in the drug rally is through the Pharm Holders (PPH) trading on the American Stock Exchange (Chart 3). The PPH has turned up with the DRG Index which it's largely based on. This week's upside volume has also been impressive. The PPH includes all of the major pharmaetical companies with the biggest holdings in Pfizer (26%), Johnson & Johnson (17%), and Merck (13%). All three are trading sharply higher today and are the three strongest stocks in the Dow.
Chart 2
Chart 3
PFIZER AND MERCK ARE LAGGARDS... Although Merck and Pfizer have two of the weakest chart patterns in the drug group, their size makes them worth watching. The daily chart of PFE shows it closing over its 50-day average today and reaching the highest level in a month. Merck is trading at a two-month high. The fact that both are rising is helping a bit. Johnson & Johnson, however, is helping the drug group a lot more.
Chart 4
Chart 5
JOHNSON & JOHNSON SURGES TO 52-WEEK HIGH ... JNJ is the star of the day. The daily bars in Chart 6 shows the stock hitting a new recovery high on massive volume. Its decision to buy Guidant probably has something to do with today's high-volume price surge. The fact is, however, that JNJ has been rising throughout most of the year. Its strong performance is seen better in Chart 7. The weekly bars show that JNJ bottomed late last year and has been rising throughout 2004. Its relative strength line also bottomed around this time last year. The makes JNJ not just a drug leader, but a market leader as well. Today's advance puts the stock above its 2002 peak near 61. It's now headed toward its early 2002 peak at 65. Other drug stocks trading at or close to 52-week highs are Abbott Labs and Schering Plough. Bristol Myers Squibb is breaking out of a basing pattern. Other HC leaders today are Bard and Baxter. Earlier in the week, I wondered about the fact that defensive groups like consumer staples and healthcare were leading the S&P 500 to new highs. It's interesting to see that the market hasn't made much headway since then.
Chart 6
Chart 7
