PFIZER SPARKS BUYING IN DRUGS AND HEALTHCARE WHICH ARE DAY'S TOP ETFS -- ANOTHER DEFENSIVE GROUP TO CONSIDER
PHARM HOLDERS ARE DAY'S TOP ETF... Pfizer's prediction of double digit growth next year (based on some serious cost-cutting) has sparked some serious buying in pharmaceutical stocks and the healthcare sector. As a result, Pharm Holders (PPH) are the day's top performing ETF. Chart 1 shows the PPH trading over its 200-day moving average today and on the way to challenging the previous highs hit in March and December. The flat line drawn over the two highs -- combined with the rising trendline drawn under the February-March lows -- has the look of a bullish ascending triangle. Although it's not shown here, the recent volume pattern has also shown heavier trading on up days which is a good sign. The relative strength ratio along the bottom shows that drugs are starting to do a bit better than the overall market after lagging throughout 2004. That makes them a potential leadership group -- which is the case today. Today's jump in the drug stocks is also making healthcare the day's top sector.
Chart 1
HEALTH CARE SECTOR SPDR... Chart 2 shows the Health Care Sector SPDR (XLV) already trading above its moving average lines and closer to its 2005 highs. That's because most of its recent strength has come mainly from the HMO sector -- and not the drugs. Last Friday I posted the relative strength rankings of the nine market sectors for the first quarter. I pointed out that healthcare was one of three defensive sectors to outdo the S&P (behind utilities and consumer staples). That recent improvement can be seen in its relative strength ratio which is rising for the first time in a year. The XLV is also benefiting from today's jump in Pfizer and several other big drug stocks. The reason Pfizer is such an important catalyst is because it's the largest holding in both medical ETFs (26% of the PPH and 19% of the XLV). But it's not, in my opinion, the most attractive drug stock from a charting standpoint. I'll show why a little later today.
Chart 2
