Bull Signal Flashing for This Healthcare Stock

Recent options buyers have been betting bearishly on MRK

Deputy Editor
Jan 17, 2019 at 1:54 PM
facebook twitter linkedin


The shares of Merck & Co Inc (NYSE:MRK) just logged an 18-year high of $80.19 in early December, but have since taken a breather to consolidate around the $75 area. What's more, the healthcare concern just pulled back to a key trendline -- a signal that, if past is precedent, might send MRK on its next leg higher. 

Specifically, the stock has just come within one standard deviation of its 80-day moving average, after a lengthy stretch above it -- a technical signal that MRK has made seven other times in the past three years. Per data from Schaeffer's Senior Quantitative Analyst Rocky White, MRK was higher one month later 80% of the time, and gained, on average, 5.92%. From where the stock currently sits at $75.53, a similar move would put the equity back around $80. 

MRK since April 2018

Analysts are generally positive on the blue-chip name. Eight of the nine analysts following MRK give it a "strong buy" or "buy" rating, and one doles out a tepid "hold." On the other hand, the consensus 12-month price target of $81.41 only represents a 7.9% premium to current levels.  Should the stock resume its long-term uptrend, a wave of price-target boosts could lure more buyers to the table.

There's still plenty of skepticism in the options pits, too, with MRK sporting a 10-day put/call volume ratio of 1.26 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits in the 98th percentile of its annual range, hinting at a much healthier-than-usual appetite for bearish bets over bullish of late -- a potential catalyst for additional tailwinds, should these pessimistic positions begin to unwind.  


A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 
Special Offers from Schaeffer's Trading Partners