Was It Just Q2 "Window Dressing", Or A Longer-Term Trend?

Was last week's decline in Merck's stock price (from $36.40, to $33.50) simply quarter end "window dressing" -- by the institutional holders, or the harbinger of a longer term bearish trend?

Last week, I said it would make sense for institutional holders to book some gains at around $36 (on June 29 or 30), and buy back in at around $34 or below, in early to mid-July. It broke well below the $34 support yesterday.

"Window Dressing" is an old game. It lets the institutions "juice" the quarterly return in their portfolios, even if only slightly, and then remake the income a second time, when Merck rises again to close to $36 -- in the process, the institutions usually don't sell off more than 5 or 10 percent of their position near quarter-end, but they make some gains to improve the quarterly returns in their reports.

That is likely why Merck was the top "Selling on Strength" stock on the NYSE, on June 28, 2010.

Highest money outflow, even though the stock was rising for part of the day before -- June 27, 2010.

But now, some analysts are arguing that this was not just a quarter-ending set of reversing trades. Some are arguing it may last for a bit. Go read it all, but here's a snippet:

. . . .In [the July 2, 2010] trading session, the shares of Merck & Co. Inc. crossed below the 50-day moving average indicating a likely bearish trend. Recent activity signals that the shares may continue to head lower in the foreseeable future assuming that the moving average continues to rise with the price of the equity. Shares of Merck settled the day down $0.22 to $34.22 on lighter than usual volume. [Friday], the stock price ranged between $33.65 and $34.50. The stock's 52 week low is $25.0 and the 52 week high is $41.56.

Other relevant figures to examine are the support and resistance levels. Based on the pivot points, the current support and resistance levels for Merck are $33.74 and $34.59 respectively. If the support point price is broken in an downward movement, then the bearish trend is likely to continue. . . .

We'll see.