Drug Sector Starts Looking Healthy Again

Although these stocks aren't hot anymore, many are showing signs of improvement.
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Editor's Note: Helene Meisler's column runs exclusively on RealMoney.com; this is a special free look at her column. For a free trial subscription to RealMoney.com, click here. This article was published Dec. 7 on RealMoney.

In mid-October, everyone was recommending the drug stocks. The refrain we heard repeatedly was that you had to buy drugs and financials. Back then, though, folks weren't really interested in technology. Now, that's about all they're interested in.

I wrote in my

Oct. 24 column that despite everyone's recommendations, the drug stocks were going nowhere fast. I pointed to the American Stock Exchange Pharmaceutical Index, or DRG, and said it was churning at 405.

Six weeks later, no one is talking about the drug sector anymore. The DRG has managed to swing from 405 to 385, back to 405 and now to the 395 area. While the

Dow Jones Industrial Average

has moved into bull-market territory, this group has lagged behind. Should the DRG hold in here at this higher low, it should make it through 405 and even attempt 420.

Where's the Party?
The drug index hasn't been invited to the bulls' fete yet

But lately, I'm jotting down comments such as "improved" and "better" on some down-and-out drug stocks. I don't think this group is going to run away like technology is. After all, few investors get excited about drug stocks the way they do about tech. Most folks think the drug sector is a place to park their money until tech is buyable again.

With that in mind, I present two drug stocks that never did much even when pharmaceuticals were faring well, but are now showing signs of improvement. The first chart is

Schering-Plough

(SGP)

. It's now had a series of higher lows, and the recent rise came on noticeably increased volume. While I don't believe it will run away, I do believe it can make it back to the mid-$40s.

Schering-Plough Recovers
Better volume accompanied its recent rise

The other chart is

Bristol-Myers Squibb

(BMY) - Get Report

. This stock has been trading in the $50s for so long that it's become boring to post the chart each night. But the spike down the other day had no follow-through. In fact, it came right back Thursday in a market that went nowhere. Bristol has a long way to go to become a great chart, but it certainly has improved to the point that $60 seems doable once again.

A Better Bristol-Myers
It could hit the $60 level

Some will say that the economy is improving and that drug stocks should only be bought in a defensive environment. I can't say why there's been some improvement, just that there has been.

Overbought/Oversold Oscillators

For more explanation of these indicators, check out The Chartist's

primer.

Note: Next week, I'm heading for my annual home leave back to the U.S. I'll be posting my charts and monitoring my statistics while I'm gone, but I'll be taking some time off from writing my column. I'll be back at my desk Jan. 2. Meanwhile, I wish everyone a happy holiday season!

Helene Meisler, based in Shanghai, writes a technical analysis column on the U.S. equity markets and updates her charts daily on TheStreet.com. Meisler trained at several Wall Street firms, including Goldman Sachs and SG Cowen, and has worked with the equity trading department at Cargill. At time of publication, she held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback and invites you to send it to

Helene Meisler.