Merck Shares Rally Following a Bullish 'Golden Cross' Signal
Merck's stock surged after the company announced strong earnings on April 30, bolstered by a bullish 'golden cross' pattern on its daily chart.
Merck & Co., Inc. (MRK) exceeded earnings expectations on April 30, triggering an upward movement in its stock price. This positive momentum was supported by a "golden cross" formation on the daily chart, while its weekly chart remains neutral.
As a Dow Jones Industrial Average component, Merck was listed among the "Dogs of the Dow" in 2018. However, it did not meet the criteria in 2019, with a price-to-earnings ratio of 17.45 and a dividend yield of 2.79%, per Macrotrends data. To qualify for the "Dogs of the Dow," a dividend yield above 3.00% is required.
On May 1, Merck stock closed at $78.72, marking a 3.00% gain year-to-date and a robust 39.9% increase from its May 9, 2018 low of $56.26. The share price remains 6.1% below its April 1, 2019 peak of $83.85.
Examining the daily chart for Merck
The daily chart reveals that the "golden cross" has been active since June 12, when the 50-day simple moving average surpassed the 200-day simple moving average, signaling a bullish outlook. Investors are advised to consider buying during pullbacks toward the 200-day simple moving average, which was accessible at $73.53 on April 18.
Using proprietary analytics, the closing price of $76.41 on December 31 established a semiannual value level at $67.68 and an annual pivot at $76.46. The March 29 close of $83.17 generated a quarterly value level at $72.74, while the April 30 close at $78.71 set a monthly risky level at $86.21.
Reviewing the weekly chart for Merck
The weekly chart is currently neutral, with the stock trading above its five-week modified moving average of $78.58. It remains significantly above the 200-week simple moving average, often regarded as a "reversion to the mean," which stands at $61.94. The 12 x 3 x 3 weekly slow stochastic is projected to decline to 52.71 this week from 61.33 on April 26.
Trading approach: Consider purchasing Merck shares on dips to the annual, quarterly, and semiannual value levels at $76.46, $72.74, and $67.68 respectively, and look to reduce positions when the price approaches the monthly risky level of $86.21.
Understanding value and risky levels: These levels derive from the last nine closes across weekly, monthly, quarterly, semiannual, and annual periods. The initial calculations were based on December 31 closes, with semiannual and annual levels remaining consistent. Weekly levels update weekly; monthly levels adjust at the end of January, February, March, and April, while quarterly levels were revised at March's end.
The underlying premise is that nine years of closing price volatility sufficiently encapsulate all potential bullish and bearish influences on the stock. To harness price fluctuations effectively, investors should buy near value levels during pullbacks and trim holdings near risky levels during rallies. Pivots, which are value or risky levels breached within their timeframe, tend to act as magnets, making it likely they will be revisited before their expiration.
Disclosure: The author holds no positions in the stocks mentioned and does not intend to initiate any within the next 72 hours.
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