|Since 2001, when its long-term trendline broke, Merck has been in a slow but steady fall from the $96.00 area. It bottomed out on November 28, 2003 in the $41.00 area. The necessary consolidation has taken place since then and it has now formed a 9-month ascending triangle.|
|Figure 1: Long-term look at Merck and Company.|
|Graphic provided by: SuperCharts.|
|This triangle has near perfect volume on the creation of the pattern. It diminishes slowly from left to right. Although this type of triangle has a bullish tendency, it has broken to the downside. This breakout occurred at the appropriate point in the triangle -- two thirds of the way through the creation of the triangle. The general market conditions were much improved over this same period of 2004 and this equity stayed in a tight range from $42.00 - $48.00. This was another indication of the future direction. |
Figure 2: Weekly chart of MRK.
The inevitable pullback up towards the breakout line in the $46.00 - $47.00 has now occurred and the next move will be downwards especially when we consider that the general trend is short as well. This is not a good long prospect but a fairly safe short opportunity.
Figure 3: Daily chart of MRK.
The first stop will be in the support area of $41.00. It may hesitate here for a while but it looks like it will fulfill its destiny and move towards the next support in the $38.50 area. Although this is not a huge move, trading it short in the $46.00 area and buying it back in the $39.00 area will be a 15% return. As always, move out of your short positions on any hard and fast down days with big volumes. This is usually the temporary bottom.
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