Dow component Johnson & Johnson (JNJ) gave up the majority of a 4% intraday rally on Tuesday after beating modest first quarter profit and revenue estimates. Quarterly revenues rose just 0.1% to $20.02 billion, in line with the personal product giant's slow growth trajectory in recent quarters. The stock sold off in January in reaction to lower 2019 guidance, and the company reaffirmed those metrics this morning, dampening buying enthusiasm. 

The stock took a dive in December, dropping 10% in a single session after a Reuters report alleged that the company has known about cancer-causing asbestos in its baby powder for "decades." It bottomed out at a six-month low a week later and bounced into March, recouping about 60% of the downdraft. Accumulation readings have also failed to recover during this period, indicating that potential investors are sitting on their hands, worried about undisclosed liabilities.

The company has repeatedly denied the allegations but could offer new disclosures during this morning's conference call. Many details in the Reuters report were sourced from plaintiff lawyers who are clearly biased on the subject, but jury awards have ramped up since the release, highlighting the topic's emotional nature in an era that often ignores science-based facts and figures.

JNJ Long-Term Chart (1995 – 2019)

Long-term technical chart showing the share price performance of Johnson & Johnson (JNJ)
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A multi-year uptrend stalled at a split-adjusted $14.67 in the fourth quarter of 1992, yielding a pullback into the single digits, followed by a 1995 breakout that added points at a rapid pace into the 1999 high at $53.55. It mounted that resistance level following the Sept. 11 attacks in 2001, stair-stepped to a new high at $65.89 in April 2002 and fell into a trading range with support in the lower $40s.

A 2005 breakout failed to gain traction, reversing four points above the 2002 high while two rally attempts into 2008 also failed, ahead of a major decline during the economic collapse. It bottomed out at a six-year low in the mid-$40s in March 2009 and turned higher into the new decade, stalling a few points below five-year resistance. It took another three years to clear that level and enter a powerful uptrend that mounted the triple digits in 2014.

The August 2015 mini-flash crash marked a major buying opportunity, bouncing in the low $80s ahead of new highs in 2016, 2017 and 2018, when the stock carved the outline of a double top pattern that is holding May 2018 support near $120. The December slide ended within two points of this trading floor, marking a line in the sand that bulls must hold to avoid a long-term top and secular downtrend. 

The monthly stochastics oscillator crossed into a long-term sell cycle in December 2018, predicting at least six to nine months of relative weakness, but it crossed back to the buy side at the panel's midpoint in April. This type of reversal is notorious for setting off false signals, suggesting a cautious approach until the stock breaks out above the 2018 high or breaks down through the 2018 low. 

JNJ Short-Term Chart (2016 – 2019)

Short-term technical chart showing the share price performance of Johnson & Johnson (JNJ)
TradingView.com

The on-balance volume (OBV) accumulation-distribution indicator topped out in 2014 (red line) and lost ground into the first quarter of 2017. Buying power lifted the indicator above the 2014 high in September 2018, while the fourth quarter sell-off broke that level into year end. Accumulation in 2019 recouped about half of the deficit before dropping into a holding pattern, with OBV now bouncing along the red support line.

The decline into December ended at the .618 retracement of the uptrend that started in 2016 and the narrowly aligned red trendline of rising lows. The 200-day exponential moving average (EMA) has aligned with the .382 retracement for the past five months, highlighting the importance of holding support near $134. A price and OBV breakdown would bring the trendline of rising lows into play, while a violation of that level would set off an early warning signal for a double top breakdown.

The Bottom Line

Johnson & Johnson stock remains stuck in a volatile 30-point trading range after the first quarter earnings report triggered a modest bounce.

Disclosure: The author held no positions in aforementioned securities at the time of publication.