The last time I looked at Merck & Co., Inc. (MRK) was back at the end of October when prices were plunging. I summed up my thoughts on MRK this way: "Prices have made a sharp decline in a short period of time, so they are extended on the downside (a.k.a. oversold). Prices could bounce, but without a base pattern or new accumulation, a sustained advance is unlikely at this time. The Point and Figure chart suggests risk down to $44, but support can be seen beginning around $51."
With a couple of months of hindsight we can see (first chart, below) that prices managed to find support in the $55-$54 area. Prices crept higher in December and then exploded to the upside in the past two sessions. Let's visit with the latest charts and indicators.
In this daily bar chart of MRK, below, we can see a number of trends or phases. From February until late October MRK traded sideways. At the end of October the stock breaks sharply lower. Prices managed to stabilize in November and we have a successful retest of the November low in early December. The new year brings a new trend. Prices close back above the 50-day moving average line and the line has quickly reversed from a downtrend to an uptrend. Yesterday -- Tuesday -- MRK soared above the declining 200-day line. The volume pattern shows heavy volume when prices plunged $10 in October as investors fled and heavy volume yesterday as buyers piled back in.
The On-Balance-Volume (OBV) line made its low in the middle of November and it broke above its December high yesterday. The Moving Average Convergence Divergence (MACD) oscillator crossed to the upside in November signaling a cover shorts buy signal. Yesterday the oscillator moved above the zero line for an outright go long message.
In this weekly bar chart of MRK, below, we can see that prices gaped above the declining 40-week moving average line. The weekly OBV line has been strong the past few weeks signaling aggressive buying on this time frame. The weekly MACD oscillator has crossed to the upside from below the zero line for a cover shorts buy signal on this longer time frame.
In this weekly Point and Figure chart of MRK, below, we can see the price swings going back to 2015 without any price gaps and ignoring volume. Right now MRK is close to an upside breakout. This chart needs to see MRK rally to $66.08 on a weekly basis to open the way to a potential longer-term advance to $82.81. Also note that there is not much price action or resistance currently above the market as we can only see a few trades from $64.14 to $65.43.
Bottom line: After the explosive move up yesterday, MRK is likely to trade sideways from around $61.75 to $63.25 -- these are rough estimates -- or an inside day. Unless there is a reversal to the downside I would look for MRK to eventually push higher to close above $66.50. A longer-term move to the mid-$80's is my price objective. Risk a close back below $58 for now.