Pharma Sector Leads Market Higher For The Week

Nick Perry (Schaeffer's Investment Research) submits: Last week we saw a widespread rally as more than 90 percent of the ETFs I track gained ground. This week the gains continued:

click to enlarge

Nearly two-thirds of the ETFs on my list headed higher with a number gaining two percent or more. Drugs stocks are usually considered a stodgy group but the Pharmaceutical HOLDRS (PPH) popped more than three percent to lead the pack. Energy-related funds were also strong this week with the PowerShares Oil Services (PXJ) finishing in the second slot. The PowerShares Pharmaceuticals Fund (PJP) rounds out the top three.

However, not all sectors were able to gain ground. ETFs related to real estate, telecom, and networking were moderately weak. The iShares GS Networking (IGN) was the weakest fund but a look at the chart below shows the group appears to just be in a consolidation phase as opposed to a breakdown. (Note - details about the indicators used in these charts can be found at the bottom of this column.)

The most noteworthy action this week seems to be from the drug sector. The rally in the Pharmaceutical HOLDRS (PPH) was enough to push the PPH to a new annual high. Today's gap higher was helped in large part by Merck (MRK). As Beth Gaston Moon discussed earlier, MRK boosted its guidance, citing strong performance. That positive news, combined with an upgrade, helped to send the shares surging. MRK is the third-heaviest weighted stock in the PPH, accounting for 13 percent of the movement. By contrast, the PowerShares Pharmaceuticals Fund (PJP) has a more diverse weighting system with MRK only accounting for five percent of the movement. However, despite the differences in structure, the PPH and PJP show a fairly high correlation with each other.

Each chart features the 50-day moving average and a nine-day relative strength index (RSI). I use the moving average (the green line) as a simple way to gauge trends and the RSI (red line below the price) suggests whether the ETF is overbought or oversold. (More information about using the RSI can be found here.)

Index performance this week:

Source: Google Finance

Comments

[Lissa Tucker]

Good article -- Thanks.

[rdknapp]

The indexs and the charts make the trends very obvious. Helpful..