Merck Surges 3.35% as Stock Tests Key Resistance Amid Bullish Candlestick Patterns

Merck (MRK) has risen 3.00% over two consecutive days, marking a 3.35% gain in the past two sessions. This recent upward momentum suggests potential short-term strength, but technical indicators must be cross-validated for sustainability. The stock’s price action has tested key resistance levels around $83.00 (previously a consolidation area in late July) and support levels near $79.00 (a recurring floor in June–July). A breakdown below $79.00 could reignite bearish sentiment, while a sustained close above $83.00 may signal a trend reversal.

Candlestick Theory

Recent candlestick patterns show a bullish engulfing formation on August 13, where the closing price ($82.71) surged above the prior day’s bearish shadow. This suggests short-term buying pressure, though the absence of a long lower wick indicates limited near-term support. Key resistance remains at $83.00–$84.00, with a critical support level at $79.00. A failure to hold above $79.00 could trigger a retest of the $78.00 psychological threshold, which has historically acted as a buffer during prior corrections.

Moving Average Theory

The 50-day moving average (approximately $85.00) currently sits above the 200-day MA ($90.00), forming a bearish divergence. The 100-day MA ($86.00) further confirms this downward bias. While the 50-day MA crossing below the 200-day MA (a “death cross”) has not yet occurred, the narrowing gap between these averages suggests a potential bearish crossover in the near term. A break above the 50-day MA would signal short-term bullish momentum, but this remains unlikely without a broader reversal in the long-term trend.

MACD & KDJ Indicators

The MACD histogram has shown a recent contraction, indicating waning momentum despite the two-day rally. The KDJ indicator (Stochastic) is currently in overbought territory (K line at 80, D line at 75), suggesting a potential pullback. However, the absence of a bearish crossover in the MACD and the Stochastic’s slow descent from overbought levels imply that the rally may persist in the short term. Divergences between price and KDJ readings, however, warrant caution.

Bollinger Bands

Bollinger Bands have widened significantly, reflecting heightened volatility following the recent bounce. The price is currently trading near the upper band ($82.84), a classic overbought signal. Band contraction observed in mid-August preceded the recent rally, suggesting a potential continuation of upward movement. However, a failure to maintain the upper band could lead to a retest of the lower band ($79.00–$78.00), which has historically acted as a critical support zone.

Volume-Price Relationship

Trading volume has spiked on the recent upleg, with the August 13 session recording 11.04 million shares traded. This validates the price action’s legitimacy, as rising volume typically accompanies genuine bullish momentum. However, the volume profile on the preceding bearish days (e.g., July 31, -4.44% decline) was even higher, indicating that bearish selling pressure remains a latent risk. A sustained drop in volume during the current rally would weaken its credibility.

Relative Strength Index (RSI)

The RSI is currently around 68–70, hovering in overbought territory. While this does not necessarily signal an immediate reversal (as strong trends can maintain overbought conditions), a close below 60 would indicate weakening momentum. A bearish divergence is emerging, as the RSI has failed to make higher highs despite the price rising to $82.71—a potential warning sign for traders.

Fibonacci Retracement

Fibonacci levels drawn between the May 2025 high ($102.00) and the July 2025 low ($76.00) highlight key psychological thresholds. The 50% retracement level ($89.00) remains a distant resistance, while the 38.2% level ($84.00) is currently acting as a near-term ceiling. A breakout above $84.00 would target the 23.6% retracement level ($87.00), but this requires a broader shift in market sentiment.

Backtest Hypothesis

The backtest strategy of buying MRK on a MACD golden cross and holding for 10 days yielded a -19.08% return, underperforming the benchmark by 57.31%. This poor performance aligns with the current bearish bias indicated by moving averages and RSI overbought conditions. The strategy’s negative Sharpe ratio (-0.45) and zero drawdown suggest a lack of risk-adjusted returns, likely due to the stock’s structural downtrend from the May 2025 peak. The failure of the MACD signal underscores the importance of confluence with other indicators—such as RSI divergence and Bollinger Band overbought levels—to avoid false positives.