Johnson & Johnson (JNJ) is a diverse health care giant and a component of the Dow Jones Industrial Average. This morning before the open the company reported better-than-expected earnings, disclosing earnings per share of $2.10 versus the expected range of $2.03 to $2.06, extending its winning streak to 27 consecutive quarters.
The stock was in recovery mode after plunging by 18.7% from its all-time intraday high of $148.99 set on Dec. 4 to its Christmas Eve low of $121.00 set on Dec. 24. The stock closed Monday, April 15, at $136.52, up 5.8% year to date and up 12.8% from its Dec. 24 low. The stock popped above its semiannual pivot at $137.24 in pre-market trading this morning.
Johnson & Johnson stock is reasonably priced with a P/E ratio of 16.62 and a dividend yield of 2.65%, according to Macrotrends. The company still faces lawsuits related to cancer-causing claims against its talc products. There is also new competition against its prostate cancer drug Zytiga. Revenue was strong for other prescriptions. Consumer sales including lotions, Tylenol and medical devices declined, but guidance for its future pipeline of new drugs looked promising.
The daily chart for Johnson & Johnson
The daily chart shows the December plunge for Johnson & Johnson, and the stock turned on a dime after trading as low as $121.00 on Dec. 24. The close of $129.05 on Dec. 31 was an important input into my proprietary analytics. Based on my calculations, there is a semiannual pivot at $137.24 and an annual risky level at $148.73. The close of $139.79 on March 29 was another important input to my analytics, and as a result, we have quarterly and monthly risky levels at $141.74 and $142.74, respectively.
The weekly chart for Johnson & Johnson
The weekly chart for Johnson & Johnson will be negative if the stock closes Friday below its five-week modified moving average of $136.54. The stock is above its 200-week simple moving average, or "reversion to the mean," at $122.48, which is the level at which to buy on weakness. The 12 x 3 x 3 weekly slow stochastic reading is projected to slip to 77.22 this week, down from 79.84 on April 12. During the week of Sept. 28, this reading was above 90.00 as an "inflating parabolic bubble."
Trading strategy: Buy Johnson & Johnson shares on weakness to the 200-day simple moving average at $135.37 then to the 200-week simple moving average at $122.48. Reduce holdings on strength to the quarterly and monthly risky levels of $141.74 and $142.61, respectively. My semiannual pivot at $137.24 was a magnet between Feb. 25 and April 3 and is now a key level to hold.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February and March. The quarterly level was changed at the end of March.
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. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble," as a bubble always pops. I also refer to a reading below 10.00 as "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.