Merck & Co Inc. is the seventh largest pharmaceutical company in the world by revenue and market capitalization. It is a DJIA component as well as an S&P 500 component. However, despite its size and significance, its stock price also suffered severely during the last two major stock market crashes of our time – the crash in 2000 and the Great Recession of 2007-2009. Merck is currently trading slightly below 59 dollars a share, recovering from as low as 20.05 in March, 2009. So is this a good time to add Merck to your portfolio? The chart below shows what lies ahead for the stock, according to the Elliott Wave Principle.
Merck stock reached an all-time high of 96.69 dollars a share in November, 2009. What is more important is the fact that this uptrend, which started somewhere in the 1980s, has a very clear impulsive structure, marked with I-II-III-IV-V. The theory states that every impulse is followed by a three-wave correction in the opposite direction. As visible, this is true, even if we talk about such multi-year long trends and patterns. Wave (II) is a W-X-Y double zig-zag, which takes over eight years to complete. Nevertheless, once a correction is over, the larger trend resumes. It turns out the recovery from 20.05 in 2009 is the start of Merck’s wave (III), which usually is the most powerful phase of the trend. The problem is that wave (III) has its own wave structure as well. In our opinion, the rally we saw in the last seven years is only wave I of (III). Once wave (5) of I of (III) is over, wave I would be a smaller version of wave (I), so the same consequences should follow – a three-wave decline in wave II, before the bulls could return in wave III of (III) to take Merck stock to new heights.
If this is the correct count, Merck & Co Inc. stock should exceed the top of wave (3) of I at 63.60 and probably approach the 70-dollar mark. However, now does not seem to be right time to be long term bullish, because a major bearish reversal is very likely to occur next. Overall, future looks bright for Merck investors. The next 3 to 5 years, however, do not.
