Weekly Stock Pick

Scanning the charts this early Monday morning, I’m looking at a low-risk high-reward short-sell trade setup on a huge pharmaceutical company. The medical sector and pharmaceutical companies have enjoyed some of the largest profit margins in earnings universe for quite some time now. Fundamentally think these record high profit margins will come to an end, at least for awhile. Technically I could care less about good or bad fundamentals right now with the bear market intact. The trend is my friend for lower prices until I see confirmed reversals to the bull trend.

I think the next big disaster that will hit the markets will be in the medical sector. President Elect Obama, and his new Secretary of State Hillary Clinton should be going after providing more affordable health care for the poor and middle class, and the medical companies could take more of a beating they’ve taken so far in this bear market. Shrinking cashflows and profit margins can mean only one thing, shrinking EPS.

For the big Pharmas, their drug pipelines are shrinking as well right now. Merck chairman, Richard T. Clark said, "We anticipate that top-line growth will be offset by the effects of a volatile global economy, fluctuations in the foreign exchange markets, as well as continued challenges for certain key products.” The very large size of these big drug companies also keeps them from continued strong growth, especially in this current deflation economy. With more negatives and positives right now the big drug companies should stay under selling pressure for awhile.

Short-Sell GlaxoSmithKline. Ticker GSK

Sell Entry: 35.88 to 38.32

Stop-Loss: 38.85

Take Profit Areas:

30 to 20

On a technical basis long term, its looks like there’s more long positions losing money than in the ones making money on Glaxo. Any bounces up should meet more selling pressure with lower prices to come into 2009 in my opinion.

GlaxoSmithKline Company Profile

GlaxoSmithKline plc (GSK) is a global healthcare group engaged in the creation, discovery, development, manufacture and marketing of pharmaceutical and consumer health-related products. It has and operations in some 114 countries, with products sold in over 140 countries. The Company operates in two segments: Pharmaceuticals (prescription pharmaceuticals and vaccines), and Consumer Healthcare (over-the-counter medicines, oral care and nutritional healthcare). The markets for its products are the United States, France, Japan, United Kingdom, Italy, Germany and Spain. In June 2008, the Company completed the acquisition of Sirtris Pharmaceuticals, Inc. (Sirtris). Sirtris will become part of GSK's Drug Discovery organization.

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Click the Glaxo Smith Kline Stock Chart for a larger view.