Johnson & Johnson Shares Rally Yet Remain Under 'Mean Reversion' Threshold
Facing legal challenges tied to opioid lawsuits and talcum powder cancer claims, the healthcare titan Johnson & Johnson is navigating a complex market landscape.
Johnson & Johnson (JNJ), a key player in the Dow Jones Industrial Average, boasts an impressive streak of surpassing earnings per share (EPS) expectations for 30 straight quarters. Despite this, the stock has dipped into bear market territory, trading 20.3% below its record intraday peak of $154.50 reached on February 6. However, recent momentum has pushed shares up 12.8% from the March 23 low of $109.16, signaling a short-term recovery.
As of last week, Johnson & Johnson’s stock closed at $123.16, down 15.6% year-to-date and trading beneath this week’s pivot point of $129.77. Valued attractively with a price-to-earnings (P/E) ratio of 14.58 and yielding dividends at 3.00% per Macrotrends, the company continues to grapple with significant fines related to its involvement in the opioid epidemic and litigation over talcum powder cancer allegations.
The daily chart reveals a sideways trading pattern since late 2018, followed by a rebound starting November 15. This uptick culminated in a "golden cross" on December 23, where the 50-day simple moving average (SMA) surpassed the 200-day SMA, typically signaling bullish momentum. This movement propelled the stock to its all-time high in early February.
Despite these gains, the stock failed to surpass critical semiannual and annual resistance levels at $161.71 and $166.58, respectively. After closing below its 50-day SMA on February 24, it hovered near the 200-day SMA before breaking down in early March. Currently, the 50-day and 200-day SMAs stand at $141.56 and $136.69, respectively, with the potential for a "death cross" looming if the rebound falters in April.
Between March 12 and 19, the stock fluctuated around its quarterly and monthly pivot points at $130.70 and $132.10 but ultimately slipped to the year’s low of $109.16 by March 23.
On the weekly chart, Johnson & Johnson has shown weakness since late February, trading below its five-week modified moving average of $134.97 and remaining under the 200-week SMA — the so-called "reversion to the mean" — at $130.98 for the past two weeks.
The 12 x 3 x 3 weekly slow stochastic indicator dropped to 38.10 last week from 49.76 on March 20. Notably, at January’s end, this reading exceeded 90.00, indicating an "inflating parabolic bubble" — a pattern historically followed by significant declines.
Utilizing proprietary value and risk levels derived from closing prices as of December 31, 2019, the analysis incorporates quarterly, semiannual, and annual benchmarks, recalculated regularly to reflect market dynamics. Investors are advised to consider purchasing shares during dips to value levels and trimming positions when prices reach risky thresholds. Pivot points, defined as value or risk levels breached within their timeframe, tend to act as magnets, often revisiting before expiration.
The 12 x 3 x 3 weekly slow stochastic methodology, refined through backtesting since the 1987 market crash, measures momentum by analyzing the last 12 weeks of highs, lows, and closes. This approach minimizes false signals by focusing on the slow stochastic reading, which ranges from 0 to 100. Readings above 80 suggest overbought conditions, while those below 20 indicate oversold. Levels above 90 signal an "inflating parabolic bubble," often preceding a 10%-20% decline over several months, whereas readings under 10 denote "too cheap to ignore" opportunities, typically followed by gains in the same range and timeframe.
Disclosure: The author holds no positions in the stocks mentioned and does not intend to initiate any within the next 72 hours.
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