Looks like the time is right to start selling, short-selling that is, the drug stocks.  I already have several biotech stocks listed as active short trades and I believe that several of the major drug manufacturers, aka- Big Pharma, have set up for some potentially nice swing trade opportunities on the short side as well.

Below are the daily and weekly charts for the sector (Major Drug/Pharmaceutical Companies).  As the weekly chart illustrates, this sector is just another one of many that recently broke out to new multi-year highs (bullish) only to have prices sharply reverse back below the breakout level (bearish…aka- bull-trap).  While prices sometimes dip back slightly below the breakout level during a re-test before moving higher, the negative divergence that was put in on this recent failed breakout to new highs significantly increases the odds the the 10-20%+ move in this sector from current levels will be to the downside vs. the upside.

Zooming into the daily chart, we can see that prices recently broke below the bearish rising wedge pattern (which had negative divergences in place on MACD & RSI), made a successful back-test of the wedge pattern and are now sitting just above support (S1).  Once/if the S1 level is taken out, prices should move rather quickly towards T1, likely pause or bounce, and then continue lower to the second target level (T2).

The active short trade MRK is one of the components of this sector and some of the other names that I like are ABT, PFE, and KERX.  There are also several ETF’s that track the sector as well such as PJP, IHE, XPH and PPH that could be used as proxies for shorting the sector for those that prefer the diversity of holdings that ETF’s offer.  I won’t be able to get all those charts up tonight but will try to do so asap tomorrow.