Rallying Merck Stock Flashing Historically Bullish Signal

MRK options are affordable at the moment

Deputy Editor
Nov 28, 2022 at 1:59 PM
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A week after announcing its acquisition of Imago Biosciences (IMGO), things are looking up for pharmaceutical concern Merck & Co Inc (NYSE:MRK). The shares just secured their sixth-straight all-time high after surging to $108.90 earlier today. Last seen up 1% to trade at $108.56, MRK now boasts a 41.4% year-to-date lead. Bullish traders should keep their foot on the throttle, however, as historical evidence suggests that the equity has a lot left in the tank.

Specifically, Merck stock's recent highs come amid historically low implied volatility (IV) for the stock -- a bullish combination in the past. Per data from Schaeffer's Senior Quantitative Analyst Rocky White, there have been four similar times during the past three years when the equity was within 2% of a 52-week high while its Schaeffer's Volatility Index (SVI) sat in the 20th annual percentile or lower. This is true of MRK, which sports an SVI of 19% that stands higher than just 7% of readings from the past year. 

Digging deeper, the security averaged a 17% return after three of those signals. From where it currently sits, a move of similar magnitude would put Merck stock at roughly $110.40. 

MRK Chart November 282022

Analysts are generally positive on the blue-chip name, though there's still a little room for potential upgrades/price-target hikes. Specifically, five of the 16 following MRK rate it a "hold." Plus, the consensus 12-month price target of $110.35 represents a slim 1.7% premium to current levels. 

It's also worth noting the security's Schaeffer's Volatility Scorecard (SVS) ranks at 88 out of 100, meaning the equity has exceeded options traders' volatility expectations in the past year.


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