Health care giant Johnson & Johnson (JNJ) is a component of the Dow Jones Industrial Average. The company has a winning streak of beating earnings per share (EPS) estimates in 30 consecutive quarters. The stock is in bear market territory at 20.3% below its all-time intraday high of $154.50 set on Feb. 6, but the share price is now 12.8% above the March 23 low of $109.16 in a short-term rebound.

Johnson & Johnson stock closed last week at $123.16, down 15.6% year to date, and it is trading below its pivot for this week at $129.77. The stock is reasonably priced with a P/E ratio of 14.58 and a dividend yield of 3.00%, according to Macrotrends. Johnson & Johnson 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 shows Johnson & Johnson stock moving sideways since the end of 2018 and then rebounding beginning on Nov. 15. This led to the formation of a "golden cross" on Dec. 23, when the 50-day simple moving average (SMA) rose above its 200-day SMA to indicate that higher prices would follow. This tracked the stock to its all-time high of $154.50 on Feb. 6.

The stock stayed below its semiannual and annual risky levels at $161.71 and $166.58, respectively. Johnson & Johnson closed below its 50-day SMA on Feb. 24 and then traded around its 200-day SMA between Feb. 28 and March 11, when this moving average failed to hold. The 50-day and 200-day SMAs are now $141.56 and $136.69, respectively. Without a rebound, a "death cross" formation is likely in April.

The stock crisscrossed its quarterly and monthly pivots at $130.70 and $132.10 between March 12 and March 19. When these levels failed to hold, the stock declined to its 2020 low of $109.16 set on March 23.

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 has been negative since the end of February, with the stock now below its five-week modified moving average of $134.97. The stock has been below its 200-week SMA, or "reversion to the mean," at $130.98 over the past two weeks.

The 12 x 3 x 3 weekly slow stochastic reading declined to 38.10 last week, down from 49.76 on March 20. At the end of January, this reading was above 90.00 on a scale of 0 to 100, which put the stock in an "inflating parabolic bubble" formation, and bubbles always pop. 

How to use my value levels and risky levels: Stock closing prices on Dec. 31, 2019, were inputs to my proprietary analytics. Quarterly, semiannual, and annual levels remain on the charts. Each calculation uses the last nine closes on these time horizons.

Monthly levels for March were established based upon the Feb. 28 closes. New weekly levels are calculated after the end of each week. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

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.