Merck Falls 1.38% in Five-Day Slide to 4.14% as Death Cross and Bearish Patterns Deepen Downtrend

Merck (MRK) has experienced a 1.38% decline in the most recent session, extending a five-day losing streak with a cumulative 4.14% drawdown. The stock’s price action and technical indicators suggest a bearish bias, though key divergences and volatility patterns warrant closer scrutiny.

Candlestick Theory

The recent price structure reveals a descending channel with lower highs and lower lows, reinforcing the downtrend. A bearish engulfing pattern on October 7, 2025, and a potential death cross (50-day MA crossing below 200-day MA) amplify bearish sentiment. Key support levels are forming around $85.00 (prior 50-day MA) and $81.00 (Fibonacci 61.8% retracement of the March–October decline). Resistance is likely near $89.00, where recent failed rallies occurred.

Moving Average Theory

Short-term momentum is bearish: the 50-day MA ($89.00) has crossed below the 200-day MA ($91.00), signaling a death cross. The 100-day MA ($89.50) aligns with recent resistance, suggesting further consolidation below this level is probable. The price remains below all major moving averages, confirming a medium-term downtrend.

MACD & KDJ Indicators

The MACD histogram has contracted from -1.5 to -2.0, indicating weakening bearish momentum, but the zero-line crossover remains negative. The stochastic oscillator (KDJ) shows oversold conditions (K=20, D=25), yet a bearish divergence exists between the oscillator and price action—price lows are lower while stochastics bottomed higher. This suggests the downtrend may persist despite the oversold reading.

Bollinger Bands

Bollinger Bands have widened significantly, reflecting heightened volatility. The price is currently near the lower band ($86.20), historically a support zone. However, the bands’ expansion implies continuation of the trend rather than a reversal, as mean reversion is less likely in a strong downtrend.

Volume-Price Relationship

Trading volume has spiked during the recent selloff, with daily volumes exceeding 14 million shares. This validates the strength of the downtrend. However, volume has declined slightly in the last two sessions, hinting at potential exhaustion. A sustained volume surge on a rebound could signal a bear trap, whereas fading volume might indicate trend continuation.

Relative Strength Index (RSI)

The RSI has fallen to 28, entering oversold territory. While this often triggers buying interest, bearish divergences (as noted in the KDJ analysis) suggest the oversold condition may not resolve quickly. A failure to break above 30 without a reversal pattern (e.g., a bullish engulfing candle) would reinforce bearish bias.

Fibonacci Retracement

The 61.8% retracement level at $81.00 appears critical. A break below this level would target the 78.6% retracement at $77.50, aligning with the March–April 2025 lows. Conversely, a rebound above $89.00 (38.2% retracement) could trigger a short-term bounce, though this would remain within a broader downtrend.

Backtest Hypothesis

The RSI-based strategy (buying below 30, selling above 60) underperformed the benchmark from 2022–2025, with a 30.52% return versus 40.70% for the benchmark. High volatility (74.72%) and a low Sharpe ratio (0.22) indicate poor risk-adjusted returns. This aligns with the current analysis: Merck’s recent downtrend and bearish divergences suggest the RSI’s oversold signal may not trigger a reversal. A backtest of the current setup would likely confirm that mean-reversion strategies struggle in trending environments, reinforcing the need for trend-following approaches.