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CHART ANALYSIS


Merck and Company (MRK). . . What's Happened?

08/20/04 01:13:24 PM
by Andrew Hetherington

The long-term trend for Merck and Company has been in jeopardy since it broke through its support line in December of 2001. What is the new outlook for this company?

Security:   MRK
Position:   N/A

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.



Andrew Hetherington

Classic Dow Theorist who trades as a pure technician, using pattern recognition.

Toronto, Canada

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Date: 08/24/04Rank: 5Comment: 
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