Forbes: Another pharmaceutical company in trouble is Merck (nyse: MRK - news - people ). This member of the Dow Jones industrial average has produced some of the most well-known drugs in the industry, including Propecia, Singulair, Vioxx and Zocor. Despite the company's notoriety, the security has been trapped in a downtrend under its 10-week and 20-week moving averages since January. During this time frame, MRK has plunged more than 48%, tagging a fresh multi-year low in early October. But, while the shares have since rebounded from these lows, MRK continues to be capped by its 10-week moving average. This trend line has taken up residence in the 30-31 region, an area that has provided stiff short-term resistance for the equity since mid-October.
Investors remain defiantly bullish on MRK. The stock's SOIR of 0.86 indicates that calls outnumber puts among near-term options. Furthermore, this ratio ranks in the 38th percentile of its annual range, indicating a decidedly bullish slant from this speculative group. Data from the ISE and CBOE lend credence to this optimistic reading, as calls bought to open have outnumbered puts purchased on their exchanges by a ratio of more than 2-to-1 during the past 10 trading sessions. This ratio also ranks above 65% of all those taken during the past year.
One other concern is a distinct lack of "sell" ratings on the shares from Wall Street analysts. According to Zacks.com, MRK has garnered five "buys" and seven "holds." With the shares in such a steep decline, we could see these holdouts shaken lose in the form of downgrades, thus increasing selling pressure. For an options speculator, a January 2009 32.50 put could result in a nice profit should the shares maintain their current downtrend. |
