Health care giant Johnson & Johnson (JNJ) beat earnings per share (EPS) estimates on July 16, but the stock stayed below its monthly and quarterly risky levels at $151.95 and $152.87, respectively. The stock is a component of the Dow Jones Industrial Average. Johnson & Johnson has a winning streak of beating EPS estimates in 32 consecutive quarters.

The stock closed Tuesday, July 21, at $149.74, up 2.7% year to date and 4.6% below its April 23 high of $157.00. The stock is in bull market territory at 37.2% above its March 23 low of $109.16.

Jonhson & Johnson has a P/E ratio of 18.73 and a dividend yield of 2.71%, according to Macrotrends. The company has been struggling with fines related to its role in the opioid crisis and talcum powder cancer charges. 

The daily chart for Johnson & Johnson

Daily chart showing the share price performance of Johnson & Johnson (JNJ)
Refinitiv XENITH

The daily chart for Johnson & Johnson shows the stock above a golden cross that was confirmed on Dec. 23. This occurred when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices would follow. This tracked the stock to its Feb. 6 high of $154.50.

From this high, the stock plunged 29% to its March 23 low of $109.16. This was followed by a 43.8% bull market run from this low to the April 23 high of $157.00.

During the decline, Johnson & Johnson failed to hold its semiannual pivot of $146.26 on Feb. 25. The 200-day simple moving average failed to hold on March 11. This led to the March 23 low of $109.16.

The V-shaped bottom pushed the stock back above its 200-day simple moving average on April 6. This led to the April 23 high of $157.00. The stock moved back above its semiannual pivot at $146.26 on April 15, which provided the upward momentum up to the April high.

The semiannual pivot at $146.26 then became a magnet between May 13 and July 14. Strength following its earnings release on July 16 stayed shy of the stock's monthly and quarterly risky levels at $151.94 and $152.87. Johnson & Johnson stock is currently trading above its semiannual pivot at $146.26.

The weekly chart for Johnson & Johnson

Weekly chart showing the share price performance of Johnson & Johnson (JNJ)
Refinitiv XENITH

The weekly chart for Johnson & Johnson is positive, with the stock above its five-week modified moving average of $145.14. The stock is also above its 200-week simple moving average, or reversion to the mean, at $133.15.

The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 44.91 this week, up from 40.43 on July 17. At the end of January, this reading was above 90 on a scale of 0 to 100, which put the stock in an "inflating parabolic bubble" formation, and bubbles always pop. 

Trading strategy: Buy Johnson & Johnson stock on weakness to its 200-day simple moving average at $141.57. Reduce holdings on strength to its monthly and quarterly risky levels at $151.94 and $152.87, respectively.

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. The annual levels remain on the charts. The monthly level for July was based upon the last nine monthly closes, the third quarter level was based upon the last nine quarterly closes, and the second half 2020 level was based upon the last nine mid-year closes. New weekly levels are calculated after the end of each week.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.