Merck & Co., Inc. (MRK​) shares have fallen more than 10% since last Thursday after the company reported its third quarter financial results. Revenue fell 2% to $10.33 billion – missing consensus estimates by $220 million – while net income of $1.11 per share beat consensus estimates by eight cents per share. However, the real catalyst behind the decline was the withdrawal of its marketing application for Keytruda in Europe.

Many analysts responded by downgrading the stock. Morgan Stanley downgraded the stock to Equal Weight and lowered its price target to $56.00; Barclays downgraded the stock to Equal Weight with a $62.00 price target; UBS analysts lowered their price target to $67.00; and SunTrust downgraded the stock to Hold with a $54.00 price target. On Tuesday, Jeffries upgraded the stock to Hold following the dramatic decline. (See also: Cancer-Drug Setback Sends Merck Shares Down Again.)

Technical chart showing the performance of Merck & Co., Inc. (MRK) stock

From a technical standpoint, the stock broke down from trendline and S2 support levels at around $61.08 to 52-week lows. The relative strength index (RSI) moved into oversold territory at 17.51, but the moving average convergence divergence (MACD) moved further into bearish territory. The MACD had already been in a decline since late September, when the stock initially began its descent prior to the Keytruda news.

Traders should watch for some near-term consolidation around $55.00 after the RSI moved into deeply oversold territory, but the long-term trend is likely to remain bearish barring any fundamental improvements. If the stock moves lower, the next major area of support is around $52.00, while $46.00 represents strong support from a double bottom pattern made in late 2015 and early 2016 before the rally throughout 2016 and 2017.

Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.

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