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.

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David Penn is Editor in Chief of