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Sterling Weekly for the Week of March 22nd, 2010
A Look at the Morgan Stanley Health Care Products Index 'RXP'

Since the previous edition of the Sterling Weekly, the Dow Jones Industrial Average gained 99.83 points or approximately 0.9%, to finish at 10,741.98 The overall market had strung together several days of upward movement prior to Friday's Quadruple Witching expiration of stock options, index futures, index options, and individual stock futures. This quarterly expiration can have a several day impact on the broad market and traders seek to unwind their positions ahead of expiration. It is also important to note that the following Monday's market can be rather unpredictable as trader's enter new positions. It is not uncommon for Monday's move to be the oppositve of the preceeding Friday's market movement. As a result I do not read too much into last Friday's market activity.

In this week's edition of the Sterling Weekly I wanted to take a look at the Morgan Stanley Healthcare Products Index 'RXP', which set a new yearly high this week, closing at 1,611.80 on Friday. The 'RXP' is an equal dollar weighted index designed to measure the performance of companies involved in the production of healthcare products, including pharmaceutical, biotechnology, and medical technology companies. The RXP Index was established with a base value of 200.00 on December 16, 1994. To ensure that each component stock continues to represent approximately equal weight in the index, adjustments are made annually, based on closing prices on the third Friday in December. I've inserted a chart of the 'RXP' below for you to review.

MS Healthcare Products Index 'HCX'

Last week the 'RXP' completed a cup pattern with a measured move to 1,710.31. In looking at a longer term chart, it apprears that if the 'RXP' reached the measured move to 1,710.31 from this cup pattern, then it will have completed a longer term, larger cup pattern with a measured move to 2,257.90.I've inserted a chart of the 'RXP' below showing this cup pattern. In reviewing a chart of the 'RXP' since inception, the all time of the 'RXP' is in the 1,660 level, and this move will obviously take the 'RXP' to new all time highs.

MS Healthcare Prodcuts Index 'HCX' longer term

I found only two (2) ETF's that seem to track the MS. Healthcare Products Index 'RXP.' They were the Vanguard Health Care ETF 'VHT', and the Rydex S&P Equal Weight Health Care ETF 'RYH.' Both of these ETFs have very light trading volume, but I found the Vanguard Health Care ETF 'VHT' did a slightly better job of matching the chart pattern of the 'RXP' than the 'RYH' did. Plus it had slightly better trading volume.

While the chart pattern of the 'VHT' doesn't exactly match that of the 'RXP' it didn't set a new yearly high last week as the 'RXP' did. The 'VHT' closed Friday at $56.80 If I were looking to enter a trade based upon the expected upside movement of the 'RXP' then I would enter the 'VHT' at the open on Monday with a stop set @ $55.43/share, which is slightly below the dowside resistance point of $55.85/share. Once the 'VHT' has closed above $57.20, its yearly closing high, I would then adjust my stop upwards to $56.81/share. I would see to futher move my stops upwards based upon the profitability of the trade.

Of course the House vote on healthcare reform, or take over, may radically change this trade Monday morning. It may be best to wait for the open of the market and look to enter the trade shortly thereafter.

Sterling Calendars for the Week of March 22nd, 2010.
Economic Calendar

Date

Est. Time Release

For

Consensus Prior
03/23 10:00am Existing Home Sales Feb. 5.00M 5.05M
03/23 10:00am FHFA Home Price Index Jan. (0.9%) (1.6%)
03/24 8:30am Durable Orders Feb. 0.5% 2.6%
03/24 8:30am Durable Orders Ex - Auto Feb. 0.5% (1.0%)
03/24 10:00am New Home Sales Feb. 315K 309K
03/24 10:30am Crude Inventories 03/20 N/A 1.01M
03/25 8:30am Continuing Claims 03/13 4,560K 4,579K
03/25 8:30am Initial Claims 03/20 450K 457K
03/26 8:30am GDP - Third Estimate Q4 5.9% 5.9%
03/26 8:30am GDP Deflator - Third Estimate Q4 0.4% 0.4%
03/26 9:55am Michigan Sentiment - Final Mar. 73.0 72.5
  Misc. Calendar
Date: Comments:
03/22 Phillips-Van Heusen 'PVH' announces earnings after the close. Est. $0.59
03/22 Williams-Sonoma 'WSM' announces earnings before the open. Est. $0.73
03/23 Carnival Corp. 'CCL' announces earnings. Time N/A. Est. $0.14
03/23 KB Home 'KBH' announces earnings before the open. Est. ($0.42)
03/23 Walgreen 'WAG' announces earnings at 7:30am ET. Est $0.71
03/24 General Mills 'GIS' announces earnings before the open. Est. $0.93
03/24 Paychex, Inc. 'PAYX' announces earnings after the close. Est. $0.33
03/25 Accenture 'ACN' announces earnings after the close. Est. $0.61
03/25 Best Buy 'BBY' announces earnings before the open. Est. $1.79
03/25 ConAgra Foods 'CAG' announces earnings before the open. Est. $0.43
03/26 Cypress Bioscience 'CYPB' announces earnings. Time N/A. Est. ($0.12)
  The full earnings calendar for this week can be found (here)

Prime Update:

The Prime Stock Newsletter is our daily newsletter that contains commentary on the overall market, and our single best trading idea for the day! (Both Long & Short Sale Recommendations) We select this stock through a combination of technical (charting) and fundamental (financial) analysis. The Prime Stock Newsletter provides select expanded quotation information, corporate description, select recent company news, our technical analysis of the shares and our expectations, and our options recommendation for the company.

Our most recent Performance Report is now available available (here). We are proud to report 17 of our last 20 recommendation resulted in profitable trades for an average profit of $0.39/share. This is an 85% success rate.

Archived copies of our Performance Reports can be found (here).

Highlights from Recent (20) Editions of the Prime Stock Newsletter
Recommendation Date Entry Point Recent Close or Exit Price Profit* Note
Seagate Tech. 'STX' Feb 17 $19.94 $20.94 $1.00 Sold on the 18th.
Lincoln Nat'l 'LNC' Mar 16 $28.30 $30.74 $2.44 $sold on the 17th

* Our March 15th recommendation of Massey Energy 'MEE' @ $50.29/share, reached an intra-day high of $54.09/share on March 17th for a gain of $3.80/share.

* Our March 8th recommendation of Williams Sonoma, Inc. 'WSM' @ $23.31/share set a new yearly closing high on March 12th at $24.71/share.

* The per share PROFIT is a theoretical calculation based upon the opening price the day the recommendation is published and the intra day high (or low for short sales) on the exit day. The exit day is determined based upon the application of our "Rules for Trading", the implementation of "stops" within our stated policy, and may not reflect the complete or full movement of the underlying recommendation.

 

Disclaimer: The Sterling Investments series of newsletters is produced by Sterling Investment Services, Inc. All information used in the production has been obtained from sources believed to be reliable and accurate. Sterling Investment Services does not warrant or assume any liability for inaccuracy of the information used to produce our publications. To receive further information on these services please visit our web page at: www.sterlinginvestments.com If you would like to contact us our fax # is (404)-816-8830 Email address is: enelson@sterlinginvestments.com Sterling Investment Services may hold positions in the securities recommended or may be providing consulting services to the companies mentioned within this report.
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