ALCOA LEADS MATERIALS HIGHER WHILE WAL MART LEADS RETAILERS LOWER -- THOSE TWO THINGS ARE LINKED -- PFIZER DROP SHOWS VALUE OF DIVERSIFICATION

ALCOA GAPS HIGHER WHILE WAL MART FALLS... Rising aluminum prices have given a big boost to the shares of Alcoa. A positive earnings report is pushing the big aluminum producer over a dollar higher in morning trading. It's also one of the big board's most actively traded stocks. Its relative strength ratio appears to be bottoming. AA is helping make basic materials the day's strongest group. That group benefits from rising inflation pressures resulting from higher commodity prices. [A weak dollar is boosting gold and oil today. Crude is up 65 cents in morning trading. Most commodities are bouncing]. It's no accident that the day's weakest group is the retailers. Last week I wrote about higher inflation pressures beginning to hurt retail spending and retail stocks. That's why today's retail drop doesn't come as a surprise -- at least to us. Wal Mart is also on the big board's most active list -- but to the downside. Chart 2 shows that the drop in Wal Mart has been going on for at least five months. Since it's the world's biggest retailer, that's not a good sign for the group.

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PFIZER LOSES ANOTHER DRUG ... It looks like Pfizer is losing another drug -- Bextra. That announcement has pushed the stock sharply lower in early trading on heavy volume. The good news is that it appears to be stabilizing at its 50-day moving average. That's causing some early selling in the pharmaceutical (PPH) and healthcare (XLV) ETFs -- but to a much lesser extent. Some drugs are actually trading higher today. There are a couple of lessons here. One is to stay with stocks in a group that show relative strength. As I wrote earlier in the week, Pfizer isn't one of them. Another lesson is the value of diversification. By buying an Exchange Traded Fund (like the PPH or the XLV) an investor gets exposure to the entire drug or healthcare groups. That reduces the chances of getting blind-sided by a sudden negative turn in one stock -- even one as big as Pfizer. I don't believe that today's Pfizer announcement is enough to upset the recent upturn in the pharmaceutical group. Today's early dip may even be a good buying opportunity for the group as a whole.

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