During Monday night's 'Lightning Round' segment of Mad Money, one caller asked Jim Cramer about Merck & Co. (MRK) : "They report later this month and the stock will go down. Buy half now and half when they report," said Carmer.
In this daily Japanese candlestick chart of MRK, below, we can see that prices gapped to the downside but today's candle pattern (so far) shows a large lower shadow. A lower shadow tells you that traders and investors rejected the lower prices and pushed prices up from the low of the day. We do not know where prices will close so we could have a hammer pattern or a long-legged doji or something else.
Whatever we have at the close will need the benefit of a stronger pattern on Wednesday to help mark a potential reversal. Note that the On-Balance-Volume (OBV) line has been pretty flat/neutral the past two months or so, telling us that traders have not been aggressive sellers. The slow stochastic indicator (an overbought/oversold indicator) is not fully oversold but it is getting there.
In this Point and Figure chart of MRK, below, we can see that the recent decline has not damaged this kind of chart. There is plenty of potential support (volume at price bars) below the market and a rally to $85.59 should turn the chart bullish.
Bottom line strategy: Though my preferred strategy is to buy strength, the decline today on MRK looks like a buying opportunity.
