HEALTHCARE TAKES TOP SPOT IN APRIL -- DRUG STOCKS GET BETTER -- DNA EXAGGERATES BIOTECH BOUNCE -- ABI BREAKS OUT -- WATCHING RESISTANCE LEVELS
HEALTHCARE SPDR MOVES AHEAD OF UTILITIES... Chart 1 shows the performance of the nine sector SPDRs for the month of April relative to the S&P 500 which is the zero line. Healthcare moved slightly ahead of the utilities as the best sector performer for April. Financials and consumer staples didn't do nearly as well, but beat the S&P. All four groups are defensive in nature. Materials fell to the weakest spot with energy not doing much better. That reflects profit-taking in those former leaders. Consumer Discretionary stocks had another bad month. Although technology under performed again, it did move up slightly in the monthly rankings. The big gains in healthcare came mainly from HMOs and pharmaceuticals. Chart 2 plots the Health Care Sector SPDR (XLV) over the last year. The XLV is one of the few sectors still trading over its 50-day average. Its relative strength line bottomed in December and has been rising since then. Healthcare has been attracting defensive money.
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PHARMACEUTICALS GETTING BETTER... A lot of credit for the revival of healthcare goes to the pharmaceutical group. Chart 3 shows the Pharm Holders (PPH) having recently broken through its December March highs to achieve an upside breakout. Not only is the PPH trading well above both moving average lines, but the (blue) 50-day line has crossed over the (red) 200-day line. That's usually a bullish sign. Its relative strength ratio started flattening out in December, but started rising during March and April. The relative strength ratio on the weekly chart (Chart 4) has turned up for the first time in two years. It seems that drug stocks are finally starting to fulfill their historical role as defensive havens at a time when the market and the economy are looking shaky.
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BIOTECH BOUNCE LARGELY IN DNA... I've been asked to explain the discrepancy between the relatively modest bounce in the Biotechnology Index (BTK) (Chart 5) and the Biotech Holders (Chart 6). The ETF recently broke through its December high, while the BTK is trading beneath its March peak. The answer has to do with the action of one stock in BBH. Chart 7 shows an explosive upmove in Genentech (DNA) since the start of April. Why that has exaggerated the rally in the Biotech Holders is that DNA is the biggest holding in the BBH (32%). Although the biotech group appears to be attracting some healthcare money, the odd construction of the BBH, in my opinion, gives a distorted picture of the biotech rally. Having said that, it just so happens that today's strongest healthcare stock was in the biotech group.
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APPLERA CORP BREAKS OUT ... Chart 8 shows an impressive upside breakout in Applera Corp. The biotech stock broke through its December high on strong volume. That's a healthy combination. The weekly bars in Chart 9 show the stock challenging the high of last spring at 22. Beyond that, the next challenge will take place at its early 2004 peak near 24.
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MARKET NEARS TEST OF INITIAL RESISTANCE... The market gained some more ground following last Friday's high-volume upside reversal day. Problem is today's upside volume was very light. It's hard to read too much into that. The major stock index ETFs, however, are moving up to test initial resistance at the highs formed in the middle of last week. The next three charts show those resistance levels to be at 116.77 in the SPY, 102.62 in the Dow Diamonds (DIA), and 35.71 in the Nasdaq 100 Shares (QQQQ). Although prices would have to close over their 50-day averages to turn their short-term trends back up again, any closes over the levels given above would justify some short-covering -- especially if it takes place on higher volume.
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