Trading Bad Drugs For Happy Days

• Posted by Greg Harmon
• on November 8th, 2011

Pharmaceutical Companies have been a great place to trade or store wealth over the the last few months. This defensive sector was a leader off of the August bottom along with Utilities and Consumer Discretionary. But there have been some signs that that leadership is changing. Jazz Pharmaceuticals started the move lower 2 weeks ago and is cascading now. Vertex Pharmaceuticals, $VRTX, was next. Last week NPS Pharmaceuticals, $NPSP, fell off a cliff from a very promising chart. Is this a sign that the days of defensive leadership are over? That would be very bullish for the broad market. until that is confirmed it is worth looking through some of the other pharmaceuticals for signs of who might be next. Lets take a look.

One That Is Leaking

Alexion Pharmaceuticals, $ALXN

Alexion Pharmaceuticals, $ALXN, has been in a bull flag but it is getting long in the tooth. The Relative Strength Index (RSI) is trending lower and heading towards 40 while the Moving Average Convergence Divergence (MACD) indicator is growing more negative. If it gets under 64 you have to start calling it lower if you do not want to give up the uptrend yet.

Two To Watch

Ironwood Pharmaceuticals, $IRWD

Ironwood Pharmaceuticals, $IRWD, is in a bull flag. It has been holding support at 13.25 and above the 100 and 200 day Simple Moving Averages (SMA). But the RSI is now making a lower low and the MACD is fading towards a bearish cross. This will happen in a bull flag and without the rest of the group heading lower we might give it more leeway. A move under 13 will confirm a fade play.

Salix Pharmaceuticals, $SLXP

Salix Pharmaceuticals, $SLXP, is also in a bull flag with the 200 day SMA as a top bound. But the RSI has been holding steady between 50 and 70 over the last month. The MACD has faded to zero and crossed negative, supporting some consolidation or downside. It reported earnings Tuesday night and was flat in after hours trading. This is the strongest of these three at the moment. But again with the whole sector taking a hit keep an eye on it. A move under 33 will be a catalyst.

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