When to Buy Merck as Shares Fall After Earnings

Merck is dropping after the company missed on earnings and revenue expectations. Here's where support needs to hold.
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Bulls who were looking for earnings to boost Merck  (MRK) - Get Report were surely disappointed on Thursday.

While the stock has fallen just 1.5% on the day, the recent performance has been pretty disappointing.

Shares have dripped about 12% from the high on Jan. 11, working on their third straight weekly decline. If shares finish lower on Thursday, it will be Merck’s 12th daily decline in the last 17 sessions.

Of course, it doesn’t help that the company missed on earnings and revenue expectations, despite the figures growing 13.7% and 6% year over year, respectively .

Further, CEO Ken Frazier announced he will retire later this year. Frazier just eclipsed 10 years at the helm last month.

Let’s look at the chart to see if this dip is an opportunity.

Trading Merck

Daily chart of Merck stock.

Daily chart of Merck stock.

A glance at the chart highlights the stock’s recent struggle. Early last week, shares broke the 200-day moving average before reclaiming it by the close. The blue arrow on the chart points out this candle.

It was a bullish reaction and had traders looking for some follow-through the next day, with hopes it could reclaim the 50-day moving average.

They got the exact opposite, as shares knifed back below the 200-day and had a “heavy” feel to it on the day. Bulls who didn’t heed the warning from that bearish move were hurt the next day, with shares falling 4% to the most recent trading range.

While $76.80 was temporary support, a series of lower highs (blue line) was a concern coming into earnings. 

After opening near support on Thursday and trying to rally, shares slipped lower and took out support. Now we’re in a sort of no man’s land here.

Investors either need to see the stock regain its footing and reclaim $76.90 - which would actually be pretty bullish - or we need lower prices to flush out the stock.

Specifically, a retest of the $74 area has seemed to draw in buyers over the last few quarters.

So if we don’t have a reclaiming of prior support, we are looking at the $74 to $75 area as a possible buying opportunity.