Johnson & Johnson (JNJ) will report earnings ahead of Tuesday's opening bell, with Wall Street analysts expecting earnings per share (EPS) of $1.96 on first quarter 2020 revenues of $19.4 billion. Shares of the drug and health giant fell nearly 1% after an upbeat fourth quarter 2019 report in January but recovered quickly, posting an all-time high at $154.50 just two weeks later. The stock then dropped like a rock with other Dow components, losing nearly 30% of its value into mid-March.
The stock has struggled since 2018, hit by the double whammy of trade war tensions and allegations of asbestos contamination in Johnson Baby Powder, an iconic product for decades. However, the pandemic has shifted dynamics and sentiment, with bigger health and safety issues taking center stage. In addition, the 2.69% annual forward dividend now adds tremendous value, with bond yields crashing to historic lows. The payouts also look reliable, immune to the wave of suspensions triggered by damaged balance sheets at U.S. corporations.
JNJ Long-Term Chart (1990 – 2020)
The stock rocketed higher during the 1990s, gaining ground at a steady pace while issuing three splits. It held up well through the first wave of the 2000 bear market, yielding a final split on June 12, 2001, or about 10 months before the uptrend topped out at $65.89. A 2005 breakout failed to gain traction, stalling at $69.99 while establishing the first point of a resistance zone that took eight years to overcome.
Failed 2006, 2007, and 2008 breakout attempts carved an ascending triangle pattern that broke to the downside during the economic collapse, dropping the stock to a seven-year low in March 2009. The subsequent recovery wave carved a shallow uptick, requiring four years to complete a 100% retracement into the 2005 high, ahead of an immediate breakout that ended at $109.49 in December 2014.
A rally in the second quarter of 2016 attracted strong buying interest, lifting the stock to a new high at $148.32 in January 2018. Price action since that time has constructed a broad rectangle pattern, with resistance at the 2018 high and support near the $120 level. The stock broke range support during the March 2020 decline but bounced strongly, remounting the contested level within a few sessions.
The monthly stochastic oscillator crossed into a sell cycle from the overbought level in February 2020, predicting at least six to nine months of relative weakness. It is now crossing the panel's midpoint, indicating that bears have taken full control of the ticker tape. This placement lowers the odds for a breakout after this week's earnings report while increasing the odds that the stock will eventually retest the March low, which printed on top of an eight-year rising trendline.
JNJ Short-Term Chart (2017 – 2020)
The on-balance volume (OBV) accumulation-distribution indicator surged to a new high in February 2020 when price action posted an all-time high, but the potent combination failed spectacularly in March, trapping breakout buyers. The corresponding distribution phase broke a three-year OBV trendline, while buying power into April has reached new resistance, raising the odds for a multi-week reversal that could relinquish more than half of the stock's short-term gains.
A Fibonacci grid stretched across the February into March decline places the April 8 reversal at the .786 retracement, which has a well-earned reputation for marking the final barrier during an oversold bounce. However, the stock is now caught between resistance at that level and support at the 50-day exponential moving average (EMA) in the mid-$130s, generating an uneasy balance between bulls and bears. Look for one side to head for the exits when this narrow range gets broken in either direction.
The Bottom Line
Johnson & Johnson stock has bounced into strong resistance after remounting long-term range support near $120, predicting that two-sided price action will continue through the second quarter.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.