Merck Earnings Winning Streak Intact but Weekly Chart Is Negative

The Merck charts suggest investors reduce holdings on on strength to the drugmaker's semiannual and annual risky levels at $89.34 and $89.87, respectively.
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Merck  (MRK) - Get Report topped Wall Street's fourth-quarter-earnings estimates, extending its winning streak of beating expectations to 24 quarters.

At the same time the stock has been slipping since setting its all-time intraday high of $92.64 on Dec. 20. 

My call is to reduce shareholdings on strength to the Kenilworth, N.J., drugmaker's semiannual and annual risky levels at $89.34 and $89.87, respectively. These levels failed to hold on Jan. 23, providing a technical warning.

The key level to hold on its daily chart is the 200-day simple moving average at $84.40. This held in early trade today. 

The weekly chart has been negative since the week of Jan. 24.

In its earnings commentary, Merck said it intended to spin off its women’s-health-care businesses into a separate company over the next four years. 

For details and full coverage of the earnings report, here’s a link to the analysis compiled by TheStreet.com.

The stock is reasonably priced, with a price-to-earnings multiple of 17.2 and dividend yield of 2.79%, according to Macrotrends.

Merck traded as low as $84 this morning, down 7.6% year to date and down 9.3% from its all-time intraday high of $92.64, set on Dec. 20. 

The stock set its 52-week low of $72.74 on April 22 and is 16% above this.

Longer term, Merck began its bull-market run from a low of $29.47, set during the week of Aug. 12, 2011. 

A bear-market correction of 28% occurred from $63.62, during the week of Jan. 16, 2015, to $45.69, set during the week of Aug. 28, 2015. 

Another bear-market correction of 21% occurred, from a high of $66.80, set during the week of March 3, 2017, to $52.83, set during the week of April 6, 2018.

This is another example of how a bull market for a stock can be interfered with by bear market corrections. This volatility is tracked by daily and weekly charts and key levels from my proprietary analytics.

The Daily Chart for Merck

The Daily Chart For Merck

The Daily Chart For Merck

Courtesy of Refinitiv XENITH

The daily chart for Merck shows that on June 12, 2018, a golden cross formed when the 50-day simple moving average rose above the 200-day SMA. This indicated that higher prices would follow.

Under this positive signal the strategy is to buy weakness to the 200-day simple moving average, which was doable at $73.53 on April 18, 2019, again at $80.11 during the week of Sept. 10, and on Oct. 22, when the average was $81.26.

The 2019 close of $90.95 was an important input to my proprietary analytics. The annual and semiannual pivots at $89.87 and $89.34 failed to hold on Jan. 23. The quarterly risky level is above the chart at $98.31.

The close of $85.44 on Jan. 31 was an input to my analytics, and its monthly risky level for February is at the top of the chart at $92.60.

A close below the 200-day simple moving average at $84.40 would be a significant negative, as my analytics do not show a value level at this time.

The Weekly Chart for Merck

The Weekly Chart For Merck

The Weekly Chart For Merck

Courtesy of Refinitiv XENITH

The weekly chart for Merck is negative, with the stock below its five-week modified moving average of $87.43. 

The stock is well above its 200-week simple moving average, or reversion to the mean, at $68.27. The stock has been above its reversion to the mean since the week of June 8, 2018, when the average was $59.38. 

The 12x3x3 weekly slow stochastic reading is projected to fall to 53.7 this week from 68.75 on Jan. 31.

Trading Strategy: Reduce holdings on strength to the semiannual and annual pivots at $89.34 and $89.87, respectively. A close below its 200-day simple moving average at $84.40 is a warning as there are no value levels in today’s market. 

How to use my value levels and risky levels:

The closes on Dec. 31, 2019, were inputs to my proprietary analytics. Quarterly, semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.

Monthly levels for February were established based upon the Jan. 31 closes.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.