Recession or Not, We Still Need Drugs

I'm sure we could all use some anti-depressants, or any drug that would make us feel better about the recent market activity. There are few sectors that are recession-resilient, if not recession proof, most of which are in the medical space. Recession or not, there isn't much we can do if we get sick. We still need to find treatment. If we want to live to see the end of the recession, we will need to find the drugs that keep us alive. Finding a drug manufacturer with an upbeat outlook isn't easy these days, but there are a few.

The old-line pharmaceuticals are still plagued by the same issues they have been for years. Lawsuits and an ever-shrinking pipeline of new drugs coupled with existing drugs with expiring patents makes these companies' prospects uncertain.

However, there are some standouts in the sector, with Cubist Pharmaceuticals (CBST - commentary - Cramer's Take) being one such company. This company is a drugmaker that recently introduced a new antibiotic that has been a key in defending against troublesome staph infections, along with other skin and bloodstream infections. Their drug, called Cubicin, is a next-generation antibiotic that targets resistant strains of bacteria that have mutated against previous antibiotics. The company is also working on ramping up sales of other antibiotics for infections that don't respond to Cubicin.

Cubist Pharmaceuticals

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As we have previously discussed, there are few stocks with positive technical configurations. Those that we do find are concentrated in sectors such as health care. Cubist has an exceptionally strong configuration. What we see here first is the accumulative nature of the stocks. This occurs as we see strength accompanied by increasing volume, and pullbacks occurring on lighter volume. That indicates underlying demand for stocks.

The other strong characteristic is the series of higher highs and higher lows creating an uptrend that has taken the stock to new all-time highs. This upward trend is also verified by the rising moving averages. The stock has not been without its share of volatility, as almost ever stock has been impacted by the broader market weakness.

We can find short-term support in the $23 area, with longer-term and more important support in the $21 area. The current price action is that of a consolidation in an uptrend that should continue to persist in coming days. We would use this lateral price action or any fades to the $23 level to be buyers of the stock. Considering the intense volatility in the market, traders may prefer a tighter stop, using the $21 support as an exit level.

Know What You Own: Other stocks that readers of this column may find interesting are Teva Pharmaceuticals (TEVA - commentary - Cramer's Take), Novo Nordisk (NVO - commentary - Cramer's Take), Allergan (AGN - commentary - Cramer's Take), Forest Labs (FRX - commentary - Cramer's Take), Cephalon (CEPH - commentary - Cramer's Take) and Vertex Pharmaceuticals (VRTX - commentary - Cramer's Take).

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At the time of publication, John Hughes and Scott Maragioglio had no positions in the stocks mentioned. Hughes and Maragioglio co-founded Epiphany Equity Research, which has developed and utilizes proprietary tools to identify and track liquidity changes in the market indices and sectors. Hughes advises numerous asset managers, hedge funds and institutions managing in excess of $30 billion. Maragioglio is a member of the market technicians association (MTA) as well as The American Association of Professional Technical Analysts (AAPTA) and holds a Chartered Market Technician (CMT) designation. Maragioglio has also served on the board of directors of the AAPTA.