Merck, $MRK, has been a very strong stock. Rising from an April low, it paused over the summer and then kept going higher as the rest of the market rolled over. It finally made a top at the beginning of December and started moving lower. It did not even retrace 38.2% of the move higher though before it found support and reversed.
The reversal happened just under the 100 day SMA and with capitulation volume. It reversed and met resistance at the 20 day SMA. It has consolidated there for a week. A move over that resistance would give a target move back to the all-time high. The RSI is rising back through the mid line towards the bullish zone with the MACD crossing up and turning positive.
There is resistance at 76.60 and 79.10 before the top at 80.19. Support lower comes at 74 and 73.25 before 71 and 70.40. Short interest is low at 2.5%. The company is expected to report earnings next on February 1st before the market opens. The stock began trading ex-dividend on December 14th. It pays a 2.88% dividend.
The January options chain shows the biggest open interest is above at the 80 strike, and much bigger on the call side. The 75 strike would be the next largest. The February 1 Expiry, covering the earnings report, shows biggest open interest at the 76 call strike, and gives an estimated price range of about 72 to 80.50 for the stock at Expiry. The February monthly chain shows biggest open interest centered at the 80 call strike.
Merck, Ticker: $MRK
Trade Idea 1: Buy the stock on a move over 76.60 with a stop at 74.
Trade Idea 2: Buy the stock on a move over 76.60 and add February 1 Expiry 75/72 Put Spread ($1.60) as protection while selling a February 80 Call (83 cents).
Trade Idea 3: Buy the January/February 77.50 Call Calendar ($1.18).
Trade Idea 4: Buy the February 70/77.50/80 Call Spread Risk Reversal (43 cents).
After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which heading into the first full week of 2019 sees the equity markets have shown some short term strength but still have a long way to go to claim a reversal.
Elsewhere look for Gold to continue in its uptrend while Crude Oil joins it moving higher. The US Dollar Index will continue to move sideways while US Treasuries pause in their uptrend. The Shanghai Composite will continue to move lower while Emerging Markets may pause in their downtrend.
Volatility looks to continue to fall from elevated levels easing the pressure on the equity index ETF’s SPY, IWM and QQQ. Their charts look ready for more upside after a strong week with the IWM leading the charge and the QQQ and SPY not far behind. Use this information as you prepare for the coming week and trad’em well.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.