The Dow Jones Industrials (^DJI) performed the testing of the mid-August intraday low that I had been expecting. Buying support appeared and the indices managed to mount the first meaningful rally of the year so far. Needless to say one should remain wary of broad market exposure and it would be prudent to pay careful attention to the changing sector allocation decisions which fund managers are making, especially with regard to more defensive sectors such as consumer staples, pharmaceuticals and health care.



The S&P 400 Midcap index (^MID) has reached down below the mid-August lows but as intimated in Monday's commentary this index looks more vulnerable to further price erosion towards the 680 level.



As part of the call that the chief economist at Goldman Sachs (GS) made yesterday regarding the fact that the US is now entering a recession which will endure for at least two quarters, there was a recommendation that defensive sectors are the place to be. Recent volume behavior for the ETF for the pharmaceuticals, PPH, shows that this sector migration is well under way and if you favor the long side of the market the health care and pharmaceuticals are starting to reveal some positive accumulation characteristics.



Cree (CREE) has a bullish pullback pattern.



Coca Cola (KO) is revealing its appeal as a defensive play.



St Jude Medical (STJ) looks set to move up towards the mid $40's.



Another strong move that was accompanied by twice the average volume was seen in Barr Pharmaceuticals (BRL).



Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market. He specializes in market neutral investing and and is currently working on a book about the benefits of trading with long/short strategies, which is scheduled for publication later this year.

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