Healthy Skepticism Library item: 7376
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Publication type: news
Rothstein J.
Will it be a happy New Year for big pharma?
Market Watch 2007 Jan 3
http://www.marketwatch.com/news/story/three-drug-stocks-benefiting-rotational/story.aspx?guid=%7B16E93653%2DE3D9%2D4394%2DB694%2D8280875E632E%7D&siteid=yhoo&dist=yhoo
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By Jack Rothstein, Wealthcast
Last Update: 11:59 AM ET Jan 3, 2007
FAIRFAX, Va. (Wealthcast) — Money is flowing into big-cap drug stocks.
In this piece I will examine three stocks that are benefiting from rotational activity among big market players. The current advance in each of the issues indicates more of the same in 2007.
Why money is rotating into big-cap drug stocks is not important. What is important is to recognize the current trend and take action.
Abbott Labs (ABT)
Abbott Labs (ABT : Abbott Laboratories
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Last: 49.90-0.02-0.04%
5:07pm 01/05/2007
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ABT49.90, -0.02, 0.0%) ended the year last year with a gain of 26.5%. It performed at a better clip then the overall market and the advance is mature. Money flow is positive. ABT is in good technical shape and although the advance is mature it will persist if it goes topside 50 on a close. The last time ABT traded at 50 was in July 2005. It is on the verge of taking out the top of its base and if it is able to negotiate the stiff resistance in the 50 zone then it is free to find new peaks to conquer.
I am involved in ABT and intend to add to the position carried only if it is able to cross 50. It trades above all key inflection points. It trades above its average price over the last 10, 50 and 200 days. That is the essential evidence necessary to determine its bullish trend. It has been consolidating the gains made after breaking out in better heavy volume at the end of June 2006. It moved from 41 to test 50 and failed. It is attempting another try at that key point of resistance and the buy signal comes when it finally breaks through. A token position right now encourages watching it so that when it successfully crosses 50 on a close, you can be nimble and pounce.
Traders may stop it at 47.44, while investors ought to use a protective stop under the 200-day line at 45.49.
Bristol-Myers Squibb (BMY)
Bristol-Myers Squibb (BMY : Bristol-Myers Squibb Company
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Last: 26.18-0.51-1.91%
5:45pm 01/05/2007
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BMY26.18, -0.51, -1.9%) currently trades in an advance indicating bullish control. It trades above all key inflection points. It has solid support at 25 and that is the baseline. It currently trades above the top of its base and a modest pullback to the 25.50 to 26 zones is the buy signal.
It is a buy from current levels down to 25.50 with a stop under its 50 day line at 24.94 for a trade and 24.39 if you are a long term investor.
Schering Plough (SGP)
Schering Plough (SGP : Schering-Plough Corporation
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Last: 23.40-0.32-1.35%
4:56pm 01/05/2007
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SGP23.40, -0.32, -1.3%) and BMY gained over 14% last year keeping pace with the SPX. It is in a decent advance right now and is slightly extended. It is better to patiently wait till it comes into support in the 23 zone. It trades above all key inflection points it has to trade above 24.07 on a close to extend the current advance and given the pace of trade the probability of that happening is favorable.
Traders may use the 50 day line to stop the loss at 22.49. The 200 day line is 20.56. It is slightly extended and is vulnerable to test that line in a market dominated by selling pressure. If that line holds then it is a delicious buy at that point.
Big caps have out performed small- and midcap stocks over the course of the rally that began after the market hit bottom in July. The fact that drug stocks are currently advancing indicates the defensive orientation of many market players. Market players typically get defensive when economic conditions are perceived to soften.
Given the current pace of trade, having a basket of big-cap drug stocks to anchor a portfolio is prudent. I am involved in all three stocks mentioned.
Jack Rothstein is an SEC-registered investment advisor who specializes in such growth sectors as technology, drugs, financial services and specialty retail. He also edits the Wealthcast investment letter and hosts two radio shows in the Washington D.C. area. Rothstein is currently participating in all of the stocks mentioned in this report. (wealthcast.com)
