Pharmaceutical Stocks Hit Bottom, Rally Could Be Imminent

In the longer term view of DRG, we can see that the 510 level is key support
By Bruce Kamich ,

NEW YORK (TheStreet) -- While some health care and biotech names still look vulnerable technically, the pharmaceutical space looks like it has bottomed on the charts.

In this chart of the NYSE ACRA Pharmaceutical Index, (DRG), above, we can see a highly oversold index overlooking the low readings for the stochastic indicator (middle panel). Extreme oversold readings often accompany market bottoms. This chart also shows a bullish divergence between the lower lows in price in August and September and the higher lows from the momentum study in the lower panel. Bullish momentum divergences tend to precede price bottoms.

Here in this longer term view of DRG, above, we can see that the 510 level is key support and the Moving Average Convergence Divergence (MACD) oscillator is narrowing, which usually precedes a bullish crossover.

This chart, above, is the S&P Pharmaceuticals Select Index (SPSIPH) with a small, slightly lopsided, double bottom formation with the MACD oscillator crossing the zero line (a positive).

Similar to the second DRG chart above, the S&P Index has support around 5,000 and the MACD oscillator is narrowing.

We would anticipate that these two measures of the pharmaceutical industry point to higher prices ahead for many of the leaders in this field.

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