Pfizer, Merck Signal Sell-Off in Drug Stocks

While most of the market moved higher in trading on Thursday, as traders and active investors spent a second day taking advantage of recent oversold extremes, many of the stocks that have not participated in this rally have been drug stocks.

From the larger pharmaceutical companies like Pfizer Inc. (NYSE: PFE)  to smaller firms like Jazz Pharmaceuticals (NASDAQ: JAZZ), sellers have become dominant in a number of these markets. PFE, for example, has pulled back for eight days in a row, including a fourth consecutive close in technically oversold territory on Thursday. Meanwhile, shares of Merck & Co (NYSE: MRK) have sold off for four out of the last five trading days, including a drop of more than half a percent on Thursday, that took MRK to oversold levels on the close.

Both Pfizer and Merck have positive edges in the short-term, with Pfzier having a short-term edge of more than three-quarters of a percent and Merck earning a positive edge of half a percent. PFE also has the higher rating of the two as of Thursday’s close, taking a neutral, 7 out of 10 rating into the final trading day of the week. This 7 out of 10 rating is one point below our “consider buying” category, making PFE among the stocks most worth watching in this sector over the next few days.

Bigger edges are already apparent in smaller drug stocks, such as Jazz Pharmaceuticals mentioned above. JAZZ has a sizable positive edge of more than two and a quarter percent after pulling back for three days in a row – the last two in technically oversold territory. Opening Thursday morning with a 6 out of 10 rating, the stock earned a one-point ratings upgrade to 7 out of 10 after selling off by nearly four percent on the day.

Closing lower for four days in a row, shares of Achillion Pharmaceuticals (NASDAQ: ACHN) are even more oversold than those of JAZZ. ACHN has a positive edge of well over two and a half percent after pulling back into oversold terrritory above the 200-day moving average in Thursday’s trading.

The S&P Pharmaceuticals SPDRS ETF (NYSE: XPH) and the iShares Dow Jones US Pharmaceutical Index Fund ETF (NYSE: IHE), both of which include the major pharmaceutical stocks among their holdings, rallied to close just outside of short-term oversold territory on Thursday. But weakness in a number of drug stocks continues to weigh on the funds. Should buyers return to some of this sector’s more oversold stocks, then additional progress to the upside in these ETFs, which still have a mild oversold bias, is that much more likely.

Stocks, ETFs, options and more! Click here to learn how to get Larry Connors’ all-new, Daily Battle Plan for free for 7 days.

David Penn is Editor in Chief of TradingMarkets.com

Have You Switched to ConnorsRSI?

ConnorsRSI is the first Quantified Momentum Indicator -- the next-generation improvement to traditional RSI indicators. At Connors Research, we are using it as an overlay to many of our best strategies to make them even better -- now you can, too.

Enter your email address to get your FREE download of our Introduction to ConnorsRSI - 2nd Edition - Trading Strategy Guidebook with newly updated historical results.

Disclaimer: The Connors Group, Inc. ("Company") is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities or currencies customers should buy or sell for themselves. The analysts and employees or affiliates of Company may hold positions in the stocks, currencies or industries discussed here. You understand and acknowledge that there is a very high degree of risk involved in trading securities and/or currencies. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. Factual statements on the Company's website, or in its publications, are made as of the date stated and are subject to change without notice.
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published by Company are not indicative of future returns by that trader or system, and are not indicative of future returns which be realized by you. In addition, the indicators, strategies, columns, articles and all other features of Company's products (collectively, the "Information") are provided for informational and educational purposes only and should not be construed as investment advice. Examples presented on Company's website are for educational purposes only. Such set-ups are not solicitations of any order to buy or sell. Accordingly, you should not rely solely on the Information in making any investment. Rather, you should use the Information only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING AND MAY NOT BE IMPACTED BY BROKERAGE AND OTHER SLIPPAGE FEES. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

All analyst commentary provided on TradingMarkets.com is provided for educational purposes only. The analysts and employees or affiliates of TradingMarkets.com may hold positions in the stocks or industries discussed here. This information is NOT a recommendation or solicitation to buy or sell any securities. Your use of this and all information contained on TradingMarkets.com is governed by the Terms and Conditions of Use. Please click the link to view those terms. Follow this link to read our Editorial Policy.