Shares of global pharmaceutical company Merck & Co., Inc. (NYSE:MRK) rallied 3.35% on Thursday on the back of its latest quarterly financial results. MRK stock has largely been trotting sideways since August of last year despite two breakout attempts to the upside and a couple of scares of breaking down.
Hastily chasing stocks higher before they show clear chart breakouts is a sure way to lose money in them markets, but Thursday’s price action in Merck stock is worth giving the benefit of the doubt.
For its fourth quarter, Merck earned 42 cents per share — a notable improvement over the 35 cents it earned in the same period a year ago. The company’s financial guidance for fiscal year 2017 was roughly in line, and I for one couldn’t detect any major outstandingly positives nor negatives in the report. However, sales of the company’s Keytrude cancer drug looked strong.
I often say that when it comes to the stock market, one can learn a lot by just watching. That breakout attempt by MRK stock on Thursday might be telling us more than the financial results did.
When I last discussed shares of Merck on Jan. 4, I pointed to the previous day’s bullish reversal and offered that a next upside target around the $62 could soon come to fruition. A few days later, MRK reached this upside price target.
Until yesterday, Feb. 2, the stock then mostly pushed sideways.
MRK Stock Charts
Looking at Merck through a long-term lens, we see that the area around $62-$64 has been serving as significant technical resistance for the stock since the early 2000s.
From this perspective, we can see that MRK stock has been consolidating below this area of resistance once again since last summer. This could be a coiling-up before ultimately breaking higher in a more meaningful way.
On the daily chart, we see this sideways move since last summer in more detail. Note the two breakout fake-out attempts last October and again in November.
On Jan. 3, MRK stock bounced off its 200-day simple moving average (red) after marginally closing below it the previous day. Yesterday’s rally served as a second leg higher following the Jan. 3 rally. It also marginally pushed the stock out of the blue box on the chart, but not yet above the two aforementioned breakout fake-out highs from last fall.
Less risk-averse traders could look to initiate a long position in Merck stock in hopes of follow-through buying in coming days while respecting any major bearish reversal as a stop loss signal.
More patient traders may first want to see if MRK can hold above the $63.50 area for several days before buying shares for a push toward the high $60s.
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