(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Johnson & Johnson (JNJ) shares may drop by about 10% based on an analysis of the technical chart. Johnson & Johnson's stock has already struggled thus far in 2018, with shares falling by 11%, versus an S&P 500 that is up about 2%, while the Health Care Select Sector SPDR ETF (XLV) is nearly flat. 

Should shares of the stock fall an additional 10%, it would mean Johnson and Johnson would have dropped by nearly 25% from its intraday high of around $148 on January 22. (For more, see also: Johnson & Johnson's Growth Prognosis Is Cloudy.)

MRK Chart

MRK data by YCharts

Weak Technical Setup

The technical setup continues to be negative in the stock, and it appears shares could fall from roughly $124.25 to about $111.33, a drop of 10.4%. The setup in the chart is bearish, with a technical pattern called a descending triangle. The stock has been able to remain above a technical support level around $122. But the bearish technical pattern in the chart suggests that the support level is likely not to hold much longer. 

Not Oversold

The relative strength index (RSI) has been stagnating, despite a falling stock. The RSI has also remained in neutral territory, which would suggest that not all the negative sentiment is out of the stock. For that to happen, the RSI would need to continue lower, and fall below a level of 30 to reach an oversold condition. (For more, see also: How Johnson & Johnson Became a Household Name.)

Not Cheap

Earnings and revenue are expected to be anemic over the next two years, with revenue seen only climbing by about 3 to 4% in 2019 and 2020. Meanwhile, earnings are seen growing by about 5 to 6% in 2019 and 2020. It leaves shares of the company at a valuation that may be too high, at nearly 14.5 times 2019 earnings estimates of $8.58 per share. It also leaves the stock trading at a much higher valuation than peers such as Merck & Co., Inc. (MRK) at 13 times, and Pfizer Inc. (PFE) at 11 times. 

MRK PE Ratio (Forward 1y) Chart

These two companies have also performed much better in 2018, with shares of Merck up by over 5%, and Pfizer down only 1.6%. It would suggest that investors are passing up on shares of Johnson and Johnson and looking to other pharmaceuticals in the space.

Johnson and Johnson's technical setup looks weak and would suggest shares are not finished falling. 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.