Shares of Merck (MRK) - Get Report are under heavy pressure Friday. The stock is off by 4.4% and is by far the biggest loser in the Dow Industrials. This nasty breakdown has left behind an ominous topping pattern that will likely drive shares lower in the near term.
For patient Merck bulls, the result will be a very low-risk entry opportunity.
Immediately following Merck's powerful earnings-inspired breakout back in early August, the stock stalled. Over the next eight weeks, the stock traced out a sideways consolidation pattern just below the $64 area.
This healthy action appeared headed for an upside resolution on Oct. 10 after Merck surged over 2% on the opening bell. Then, the next day the stock collapsed, leaving behind a failed breakout. The stock fell back into its post-Aug. 5 consolidation pattern as overhead pressure intensified.
Of late, the action has been very volatile, and as the week comes to a close, Merck is cracking.
Merck will soon fill the huge upside gap left behind back in early August. This level, just below $58.25, marks the top band of a major support zone, just below is the stock's April and June highs. The lower band of this key zone includes Merck's August low as well as the upward-sloping 200-day moving average.
If the stock can regain its footing near this key zone, a very low-risk entry opportunity will be at hand. The stock will have an extremely heavy overhead supply zone to work through, but a base near $58 will be an encouraging start.
This article is commentary by an independent contributor. At the time of publication, the author held TK positions in the stocks mentioned.