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Examining Pullbacks in Domino's, DuPont, and Drug Stocks

Here's a look at recent short-term weakness in pharmaceuticals, industrials, and more

by 3/23/2012 8:15:45 AM
Stocks quoted in this article:

Domino's Drops Sharply

Traders for whom trading stock gaps is a key element of their active investing will have another opportunity to ply their trade as shares of Domino's Pizza (DPZ) plunged more than 8.5% in Thursday's session.

The stock, which was trading at new 52-week highs as recently as Monday, is now at new two-week lows, and trading short-term oversold for the first time since a five-day sell-off in the first half of February.

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Amgen, Lilly Trade Lower

A handful of blue-chip drug stocks have pulled back toward levels where traders, historically and statistically speaking, have been more inclined to buy than sell in the short term. Among these stocks are Amgen (AMGN), which closed lower for a third day in a row on Thursday to finish just inside technically oversold territory, and Eli Lilly (LLY). Shares of LLY have also pulled back for three consecutive sessions, but managed to finish near the highs of the day after opening near two-week closing lows.

Last oversold just a few weeks ago, shares of AMGN rallied for five days in a row in response to a pullback that took the stock lower for four out of five trading days at the beginning of March. Eli Lilly's last retreat to technically oversold levels, around the same time as the Amgen pullback, led to seven consecutive higher closes as the stock advanced to its highest levels since the beginning of the year.

Dow and DuPont: Can These Chemical Brothers Bounce Back?

Industrial stocks in general were selling off ahead of the final trading day of the week. The Industrial Select Sector SPDR ETF (XLI), one proxy of the industrial stock sector, has closed lower for three days in a row, all in technically oversold territory.

Typical of the short-term weakness in industrials is the pullback in industrial chemical company Dow Chemical (DOW). Shares of DOW have just begun to sell off in the wake of the stock climbing to its highest levels in months, the profit-taking sending DOW lower for three consecutive sessions, and into short-term oversold territory above the 200-day moving average.

The last time shares of Dow Chemical were trading oversold near the beginning of the month, traders responded to the two-day sell-off by sending DOW higher for seven out of the following nine trading days for a gain of more than 9%.

Interestingly, rival chemical concern DuPont (DD) has closed lower for five days in a row ahead of trading today, yet has a far more modest short-term edge of under a third of a percent. Given this, it may be the case that DuPont will require additional volatility before buyers are lured off the sidelines with any enthusiasm.

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David Penn is Editor in Chief of TradingMarkets.com

Disclaimer: The views represented in this column are those of the individual authors only, and do not necessarily represent the views of Schaeffer's Investment Research.

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