Merck Shares May Have Hit A Ceiling For The Most Recent Upside Move

Merck & Co., Inc. MRK stock participated in the market's recent upside like most other U.S. equity issues. However, unlike some that broke out to new highs, Merck shares seem to have "hit the wall" in terms of upside momentum at just above $60.

Can the company's fundamentals and operational excellence motivate big money to enter the stock on the long side and push it through the resistance level?

What The Bulls See

• A Treasury-beating 3 percent annual dividend yield.
• Some cheap valuation metrics: An enterprise value of $181 billion that trumps the market capitalization of $170 billion and a price-to-sales ratio of only 3.97.
• About 12.5 percent net profit margins.
• A debt-to-equity ratio of only 47.57 percent.

What The Bears See

• Some expensive valuation metrics: A price-to-book ratio of 3.56, a PE ratio of just over 18 versus estimated 2015 revenue and EPS growth rates of -3.9 percent and 2 percent, respectively.
• A stock in a weak technical position below $61.02.

The Technical Take

Technicians note that Merck shares might have completed an "abc" upside correction a few sessions ago and might be in the early stages of another leg lower that may match the September to October decline in magnitude. If this read by the technicians is correct, then Merck should trade down to the $52.49 level. Only a break and close above $61.02 will turn many of the technical bears into Merck optimists.

Bearish traders will be looking to short Merck shares as they approach the $60.18 to $61.02 range and bullish traders will be aggressively trying their hand on the long side at $55.85 or $52.49.