The share is in contact with an important level. We suggest caution because this point could stop the bullish trend.
From a fundamental viewpoint, firstly, we note the high valuation of the company. The P/E ratio for the current year is at 29.18x and expected at 20.92x for next year. The EPS has also been highly revised during the last 12 month going from 2.98 to 1.67. EPS forecast for 2014 are also very pessimistic.
From a technical viewpoint, the proximity with the USD 48.75 resistance limits the upside potential on the stock. The uptrend in the short term could be stopped by this level and prices could decrease sharply in the coming sessions. Technical indicators also show an overbought situation that reinforces this bearish scenario. Thus, there is a higher downside potential than upside.
The graphical and financial configuration argues to establish a short position at the current price. Merck & Co. has all the characteristics for short selling. The first objective will be fixed near the USD 46.55, the short term support and by extension the USD 45.1 area. This strategy should be protected by a stop loss above USD 48.74.