These Charts Explain Why Johnson & Johnson Should Be Approached Tactically

In his most recent Dow 30 report, Market Technician and Eagle Bay Capital founder JC Parets looked into Johnson & Johnson JNJ’s stock movement. The two charts below provide some interesting insight for shareholders and potential investors.

Weekly Chart

According to the research note, structurally, the stock has been in one of the most robust uptrends in the Dow Jones Industrial Average. The bearish momentum divergence at recent highs has maintained Eagle Bay at a more neutral stance. The firm continues to trade in this range, “although in what is looking more and more like a broadening top, which is traditionally bearish.”

A break of the uptrend line from 2012 gave the analysts downside targets in the mid-90s, which was support last year and resistance in the previous one.

“If momentum breaks out above this downtrend line, it would be a positive,” Parets expounds. “Below the 2012 uptrend line and I want nothing to do with it, particularly with momentum putting in bearish divergences. Relative strength also broke down below this 2-year range.”

The expert still doesn’t like this and would continue to approach the stock more tactically. See the daily chart below for further information.

Daily Chart

Short-term, Eagle Bay analysts said in November that “prices were flagging above former resistance and a breakout above the upper of the two parallel lines defining this small channel would confirm that is a continuation pattern and we want to add to longs on this breakout.”

Notwithstanding, they said, “when bullish patterns resolve negatively, the market is telling us that larger forces are at work, and that in fact a short-position on a breakdown below the lower of the two trendlines would make a great trade.”

This is just what happened, allowing shorts to remain so below the 12/19 highs and confirming a bearish momentum divergence.

Eagle Bay’s downside target close to $99 (based on last summer’s support and the 38.2 percent Fibonacci retracement of the 2014 rally) was hit in February. Parets said he would still maintain a more neutral stance at the times, “especially below a flat 200 day moving average. A bearish development would be a break of the uptrend line from the October lows. That would be really bad.”