Pharmaceutical giant Merck (MRK) was a Wall Street darling for decades as it generated outstanding returns for shareholders as it churned out blockbuster after blockbuster drug. Fast forward to today and the stock and its shareholders are licking their wounds after bad news keeps pounding the shares. Unfortunately there is no saving grace in the chart as it looks severely damaged.
Bleeding Out
The latest setback for Merck occurred last week when a study of its anticlotting pill Vorapaxar was halted. Reports speculated that this could have been a $5 billion drug and was the crown jewel in the huge Schering-Plough acquisition a little more than a year ago. It seems that excessive bleeding was the cause of the study being halted. Drug stocks are valued a lot based on their pipeline and this is a huge blow to future revenue even if it doesn’t hurt current results.
Speaking of Bleeding
The chart plain and simply looks awful. The big drop on gigantic volume penetrated all sorts of support levels on the way down. Its 50 and 200-day moving averages were sliced through in one fell swoop as was the fledgling uptrend since early December. The year actually started off well for the shares, but that was a headfake as the Vorapaxar news was lurking in the background.
Unfortunately for the bulls, these situations usually get worse before they get better. The old support levels now become resistance levels and there is a lot of overhead supply. In other words, there are many who bought at higher levels that are waiting to sell as they get even. There might be some support in the $34 area, but it’s tough to say how strong it will be. At best this stock seems like it is dead money for the time being as it will take a lot of time to restore investor confidence and repair the damaged chart. In the meantime, search for much greener pastures.
Following Up
Yesterday I spoke of potential landmines, and today was the first one that blew up in a big way. F5 Networks (FFIV) got scorched after it missed on revenues and offered a lukewarm forecast. Its report for last quarter was actually excellent, but like I said, any misstep on a stock that has soared will make investors run for the hills. Be careful out there.
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