Taking Merck's Temperature

 | Feb 09, 2018 | 3:26 PM EST
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Merck & Co. (MRK) has endured a number of wild rides in the past four months. Wow. I am not sure what to make of these dramatic swings up and down but let's look at the charts and indicators to see what we can glean.

In this daily bar chart of MRK, below, we can see that prices were roughly in a $62 to $67 trading trading range until late October. MRK traded back and forth around the popular moving averages and the On-Balance-Volume (OBV) line was steady. Not exactly the pre-conditions you might see before prices plunged in late October.

MRK made a recovery into January but prices could not sustain themselves over the declining 200-day moving average line and a selloff to a new low rapidly got under way. The OBV line is back to its November nadir and momentum has not yet diverged from the price action -- not good medicine.

In this weekly bar chart of MRK, below, we see a rounded top pattern from the middle of 2016. The 40-week moving average line has a bearish slope and a rally last month failed at that line. The weekly OBV line has turned down but it is above its November low.

MRK got oversold in November when I look at the stochastic indicator readings around 10. If MRK makes a weekly close below $54 the stochastic study is likely to make a higher low. If MRK makes an equal low the stochastic is still likely to make a higher low.

In this Point and Figure chart of MRK, below, we can see the double bottom at $53.62. A trade at $53.09 would be a new low on this chart and could open the way to a further decline to the $51.33 area.

Bottom line: The November lows in MRK may or may not hold. Right now, I think the lows will hold and MRK can recover a bit into March. How far MRK can travel in the next few weeks could tell us a lot about the next big trend for the stock.

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