INVESTORS BUY DRUGS AND SELL CHIPS -- S&P 500 SLIPS BELOW 50-DAY AVERAGE TURNING SHORT-TERM MOMENTUM BACK DOWN
PHARM HOLDERS ARE DAY'S TOP ETF ... On another day when stocks are coming under selling pressure, investors are favoring defensive stock groups like pharmaceuticals. Chart 1 shows Pharm Holders (PPH) trading up on the day (while most of the rest of the market is down). The rising PPH/SPX relative strength ratio (below chart) shows that drug stocks have been market favorites for several months. They underperformed slightly during the late-June/early July rally, but are doing relatively better this week. The day's biggest percentage gainer in the group is Eli Lilly (LLY) which is shown in Chart 2. The stock is climbing 2.6% on rising volume. Notice the strong uptick in its RS line (see circle). Chart 3 shows Merck (MRK) gaining more than one percent on the day. Its RS line is also rising. Drug stocks are one of the places people go when they're starting to worry about the health of the stock market.
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Chart 1
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Chart 2
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Chart 3
FALLING SOX... On the down side of the equation, semiconductors are being sold especially hard and are weighing on the entire market. Chart 4 shows Semiconductor Holders (SMH) falling below its 200-day moving by the widest market since last summer. It's also in danger of breaking its March/June lows. The falling SMH/SPX ratio (below chart) shows that semis have been underperforming the market since March and even moreso since May. Since this group is such an important component of the technology sector, it's usually not a good sign for the market when semiconductors are doing so badly. Two of the worst performers have been Analog Devices (ADI) and Linear Technology (LLTC). Charts 5 and 6 show both stocks tumbling below their 200-day moving averages (in heavy trading) to the lowest level this year.
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Chart 4
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Chart 5
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Chart 6
S&P 500 SLIPS BELOW 50- DAY AVERAGE... Traders turned more optimistic on the market when the S&P 500 closed back above its 50-day moving average early last week. Unfortunately, the blue 50-day line failed to turn up as well. In fact, Chart 7 shows that it's still falling. That makes last week's upside breakout suspect. So does today's drop below the 50-day support line. A decisive close below that line would negate last week's upside breakout. Near term momentum is now shifting back to the downside. As usual, Friday's close will carry even more significance.
