It
is no secret that big stocks have fared better recently compared with
mid caps and small caps. What may not be immediately apparent is that
consumer staples stocks of all sizes have been lagging. So have drug
stocks. So when we find a stock straddling all three areas, we should
take note.
Pharmaceutical and consumer products maker Johnson & Johnson (NYSE: JNJ) is one such stock, and unlike its large-capitalization peers, its chart is not healthy.
Last week, the stock moved below both its rising February trendline and 50-day moving average in what should be a serious warning for investors. Indeed, the pattern now developing is such that it is probably a good idea to sell it if not go outright short.
Let's start with the big picture. Between July of last year and March
of this one, JNJ traded in a rather wide range between $85.50 and
$95.50, in round numbers. It exploded higher on March 21, on news of
positive results with its schizophrenia treatment, for a technical
breakout.
The rally progressed nicely until crossing the $105.50 level, where it stalled. Why $105.50? That was the measured objective for the trading range breakout. The 10-point height of the range projected up from the breakout level of $95.50 targeted $105.50.
Though prices edged slightly higher, the supporting technicals deteriorated. For example, cumulative volume started to fade in June, soon after the price target was reached.
As the stock fell, volume was much heavier than normal. And as JNJ rebounded over the past few days, volume contracted as it usually does during a countertrend move. In other words, volume is telling us that short sellers taking profits and not aggressive bulls pushed prices up this week.
The rising corrective bounce may not yet be over, but to me it looks to be a matter of time before the new falling trend reasserts itself. Support at the top of the old range near $95.50 seems to be the likely next downside target.
Recommended Trade Setup:
-- Sell JNJ short at the market price
-- Set stop-loss at $104.40
-- Set initial price target at $95.50 for a potential 7% gain in four weeks
Pharmaceutical and consumer products maker Johnson & Johnson (NYSE: JNJ) is one such stock, and unlike its large-capitalization peers, its chart is not healthy.
Last week, the stock moved below both its rising February trendline and 50-day moving average in what should be a serious warning for investors. Indeed, the pattern now developing is such that it is probably a good idea to sell it if not go outright short.
The rally progressed nicely until crossing the $105.50 level, where it stalled. Why $105.50? That was the measured objective for the trading range breakout. The 10-point height of the range projected up from the breakout level of $95.50 targeted $105.50.
Though prices edged slightly higher, the supporting technicals deteriorated. For example, cumulative volume started to fade in June, soon after the price target was reached.
As the stock fell, volume was much heavier than normal. And as JNJ rebounded over the past few days, volume contracted as it usually does during a countertrend move. In other words, volume is telling us that short sellers taking profits and not aggressive bulls pushed prices up this week.
The rising corrective bounce may not yet be over, but to me it looks to be a matter of time before the new falling trend reasserts itself. Support at the top of the old range near $95.50 seems to be the likely next downside target.
Recommended Trade Setup:
-- Sell JNJ short at the market price
-- Set stop-loss at $104.40
-- Set initial price target at $95.50 for a potential 7% gain in four weeks
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