Stock Of The Day: Where Does The Merck Downtrend End?

Shares of Merck & Co., Inc. MRK are trading flat on Thursday, but remain in a downtrend.

If the stock eventually reaches levels around $95.00, there is a good chance it reverses and heads higher. As you can see on the chart, this is what happened in late November. This is why our technical analysis team has made it our Stock of the Day.

There has been a lot of news coming from Merck.

The advanced cancer genomic testing provider Personalis, Inc. PSNL said it received a $50 million equity investment from Merck.  When the deal closes, Merck will own 16.5% of Personalis.

Merck also announced that it is entering the lucrative obesity market. It is licensing rights from Chinese biotech Hansoh Pharmaceutical Group Company Limited HNSPFto an investigational oral GLP – 1 receptor.

The chart of Merck offers some simple but valuable technical analysis lessons. Price levels that had been resistance can convert into support. Also, stocks that drop to support have a tendency to rally.

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$119.40 was resistance in May 2023. Some of the investors who sold then were happy when the price fell soon after. They thought they made a good decision.

But in January 2024 the resistance broke and the stock moved higher. When this happened, some of these sellers came to think they made a mistake and decided to buy their shares back if they can do so at the same price they sold them for.

So, when the stock dropped back to around $119.40 in March 2024 they placed buy orders. The large concentration of these orders formed support at the same price that had been resistance.

Similar action occurred at the $111.00 level. It was resistance in August 2023. Then it became support a year later in August 2024.

In July 2022, the $95.00 level was resistance. It converted into support last month, and it may be support again if Merck reaches it.

As you can also see on the chart, sometimes stocks rally after they reach support. This happens when some of the buyers who created the support think they will get outbid. If someone else is willing to pay a higher price, that's who the sellers will go to.

As a result, they increase the prices they are willing to pay. Others see this and do the same. It can cause a snowball effect that pushes the stock higher and it may be about to happen with Merck.

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Image: Courtesy of Merck.