With the markets in the midst of a two-week correction, it seems that the recent high level of bullish sentiment has died down rather quickly. Many stocks have taken a hit recently, making it hard for investors to sit idly and watch as the markets give back several weeks of price action in a few days.
However, the general indexes remain well above their September breakout levels despite the recent weakness. While many individual names are falling with the general markets, there are still stocks that continue to look good, and refuse to give up much ground. Interestingly, I came across an entire sector that has been refusing to give up any ground over the past two weeks: the drug manufacturers.
The drug manufacturing sector has several individual stocks that are in the midst of a strong rally, and are showing very little weakness, even as the markets continue to pull back. While the reasons can be many, if we simply focus on the price action we can see that these stocks have had outstanding moves already, and yet are seeing very little selling pressure.
Pharmasset (Nasdaq:VRUS ) for instance, has rallied from a September low under $25, to over $40 per share in just three months. Despite the strong run, VRUS has seen very little selling pressure the past few weeks and is in the process of forming a bull flag. This is a good show of relative strength, as market participants are not selling their shares despite general weakness in the markets. Traders should monitor the flag pattern for a possible continuation move higher.
Dr. Reddy's Laboratories (NYSE:RDY ) has experienced a very similar move from $28 to $40 in about the same time as VRUS. While it has pulled back with the general markets over the past few sessions, it remains in a healthy uptrend, and has given up very little in relation to its preceding trend. RDY has pulled into its rising 20-day moving average and could find support at this level. Traders should watch to see if it can hold near this level and set an important pivot low.
United Therapeutics Corporation (Nasdaq:UTHR ) is another drug manufacturer that has not fallen very much with the general markets of the past two weeks. In fact, UTHR is close to its 52-week highs, and within 10% of all-time highs. UTHR has experienced two breakaway gaps in the past two months and didn't fill either one. This is showing strong buying pressure, as well as the fact that UTHR has not given up any ground with the recent weakness and instead is pushing toward its recent highs. Traders should monitor gap support near $58 in case of some weakness, but also the top of the current flag near $61 for a possible breakout.
While Alexion Pharmaceuticals (Nasdaq:ALXN ) is technically in a tight consolidation, it is doing so even while sitting at all-time highs. This is a good show of strength as well, as it shows market participants are not selling despite ALXN hitting new highs. ALXN has been trading in a very tight range over the past two weeks and traders should be watching for a move outside of this range. A break below this range would imply a test of the bottom of the larger range near $67.50. A break above this range could take ALXN to all-time highs.
The drug manufacturers have managed to avert the recent weakness so far, and if the markets can attract some buyers, it may help this group continue to push higher. Market participants have been reluctant to sell this group, and this is a good show of relative strength. While the markets can certainly continue to head lower, they are starting to become oversold on several indicators and the prevailing trend remains positive. As such, traders should monitor groups like this that have continued to perform well despite recent weakness. These groups would be a good place to take a chance on a bounce back in the markets. (For more, see The Anatomy Of Trading Breakouts.)
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At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.