Buyers of Merck's Stock Have Become More Bullish in the Past 4 Months

 | Mar 12, 2018 | 10:41 AM EDT
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Merck & Co, Inc. (MRK) has been finding buying interest on dips towards and below $54 and it looks like enough accumulation has been seen since November to restart a rally. Let's review the charts and indicators to see where this move may carry in the weeks ahead.

In this daily bar chart of MRK, below, we can see that longs have been challenged in recently months with three rapid $10 moves - from $64 in early October to $54 in November to near $64 again in January only to revisit $54 again in February. Hard to be a position trader under those circumstances.

As we move through March we can see that prices are below the declining 50-day moving average line and the declining 200-day average line. Heavy volume can be seen in late October on the first decline and in January on a steep rally and gap.

The On-Balance-Volume (OBV) line is easier to read and interpret - a low is seen in November and a retest in February suggesting that buyers of MRK have been more active below $55 since November. The trend-following Moving Average Convergence Divergence (MACD) has turned to the upside for a cover shorts buy signal. Crossing above the zero line will give us an outright go long signal.

In this weekly bar chart of MRK, below, we can see that prices are below the declining 40-week moving average line. Support is developing around $54 and the weekly OBV line turned up strongly in December and is likely to make a higher low in the next few weeks. The weekly MACD oscillator crossed to a cover shorts buy signal in early January and then crossed downward in February. The two moving averages of this indicator are very close to another upside (bullish) cross.

In this Point and Figure chart of MRK, below, we can see that the $53.62 level has held three times. A break of this level would be bearish but right now the chart shows an upside price target of $63.05. A trade at $57.49 would be bullish.

Bottom line: Aggressive traders could approach MRK from the long side buying a starter position at current levels and then adding on strength above $57. $61 and $64 are my initial upside price targets. Risk a close below $53 for now.

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