Pharma giant Merck (MRK) is showing a particularly auspicious technical setup right now -- an inverse head-and-shoulders pattern. The head-and-shoulders pattern is probably one of the most well-known technical formations out there today, but just because it's popular doesn't mean it's not effective. A recent academic study on the head-and-shoulders show that the formation can be both statistically and economically significant for traders.
In Merck's case, the key price level to watch is the neckline. It's the price level that triggers the "buy" signal in this setup. Because an inverse head-and-shoulders indicates exhaustion among sellers, it'll be important to watch volume if shares to make their way above the neckline. We'll want to see any breakout occur on high volume.
If you do decide to take this trade, I'd recommend placing a protective stop just below the 200-day moving average. It's a price that recently acted as strong support for shares.Merck, one of the highest-yielding drug stocks, was featured recently in "David Tepper's Top 5 Dow Stocks."
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV