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Daily Blog -02/03/09- 3:03 P.M.

Drug Stocks Lead a Rebound

The major stock market indices were positive on Tuesday with the Dow Jones Industrials and the S&P 500 index both ending a three-day losing streak. Positive earnings reports from two large drug makers and a bounce in the transportation sector is leading the market higher.

Merck & Co (MRK) and Schering-Plough Corp. (SGP) both reported earnings today. MRK beat analysts' estimates of 74 cents with a profit of 87 cents a share. SGP reported a profit of 39 cents versus estimates at 30 cents a share. Both stocks are up sharply with MRK up 6.5% and breaking out over resistance at its 100-dma and the $30.00 mark. SGP is up 7.6% to $18.81 and breaking out past all of its significant moving averages including its 200-dma. This is producing a 3% gain in the DRG drug index and having a positive influence on biotechs (+3.5%) and healthcare (+3.6%).

The transports are also doing well today. Yesterday the transportation index ($TRAN) produced a worrisome breakdown to new multi-year lows. Today the group is rebounding with a 3.6% gain thanks to United Parcel Service (UPS). UPS reported earnings that were 2 cents worse than expected but investors are responding well to the report even though the company gave somewhat bearish earnings guidance. UPS management said they were freezing executive salaries and suspending retirement contributions. UPS confessed that the economic slowdown would have an impact on 2009 results. Shares of UPS are up 5.9% to $44.93 and are building what appears to be a three-day candlestick bullish reversal pattern.

The U.S. monthly car sales report was the next major headline. The results were staggering. General Motors (GM) reported that January vehicle sales dropped more than 50%. Analysts were expecting a 40% decline in sales from a year ago. The stock is off about 2% at $2.83. Ford Motor Co. announced that their January sales fell 42%. Current global leader Toyota Motor Co. (TM) said that their U.S. sales fell 31.7% in January.

Overall we have an up day on Wall Street. Here are some of the best sector performers:

Best Performers..........
DRG drug index .... +3.0%
BTK biotech index . +3.3%
XNG natural gas ... +2.4%
RLX retail index .. +2.7%
DJUSHB homebuilders +8.2%
HMO healthcare .... +3.6%
DJUSRR railroads .. +3.1%

Worst Performers........
BKX banking index.. -5.5%
BIX banking index.. -5.9%
DDX disk drives ... -7.0%
DJUSCA gambling ... -3.0%
XAL airlines ...... -1.1%

The DJIA is back above the 8,000 mark with a 106-point gain to 8046. The S&P 500 index is up almost 10 points to 835. The NASDAQ Composite index is clawing its way back above the 1,500 level with a 12-point gain to 1,506.

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