Swing High Formed In MRK Today

I've been short MRK for a few weeks now and the position was beginning to look like it might get closed out soon as MRK has shown a little bit of strength lately. Well, that strength is more likely just some consolidation after the sell off that it's suffered lately.

Today MRK formed a swing high on the daily chart, which means that it failed to make a higher and and it made a lower low from the previous day's bar. This is a bearish sign and it is a pattern that provides a good entry for shorts because it offers a good risk to reward entry.

Here's the chart:For those looking to enter a short position, this pattern is a good one for it...the first profit target will be the previous lows down around $31 and the stop is placed above the prior day's high at $34.15. I'll be looking to add to my short tomorrow.

TLT

Trade Idea: Buy XLV and Short MRK

One cool feature that thinkorswim offers is the ability to pull up pairs charts. We'll use the daily spread chart of XLV-MRK to show this potential spread trade. Here it is:This chart represents the spread between XLV and MRK...as the price rises, that indicates that XLV is stronger relative to MRK and vice versa for the downside. As you can see from the chart, it appears that XLV bottomed and MRK topped back in January and now XLV is getting stronger relative to MRK. Right now the spread is roughly at -3 (XLV's price is $30.38 and MRK is 33.31). From this chart, I've set a price target of +1 spread...XLV would rise and MRK would continue to fall.

I've been tracking and playing with spread trades like this..especially trading single stocks against their sector etfs. This potential trade is standing out to me right now and I though it would be worth sharing.

TLT