Johnson and Johnson JNJ Reaches New Highs

Aug 22, 2008: 12:01 PM CST

Consumer staples (defensive sector) stock Johnson and Johnson has performed rather well in the current uncertain economic environment, as funds and investors have rotated into perceived stable sectors as of late.  Let’s see the result of this flow and if there’s a potential trading opportunity now in this stock.

Johnson and Johnson (JNJ) daily:

Price actually bottomed prior to the stock market bottom (think Freddie & Fannie) on July 15th (JNJ actually ‘bottomed’ in June) and has rallied over 11% from these levels.   JNJ Relative Strength chart (not shown) to the S&P 500 actually bottomed in mid-May before skyrocketing higher (to create a relative strength chart in StockCharts.com, enter JNJ:$SPX – this divides JNJ by the S&P 500 to view the ratio).

From early July, price has staged an impressive upwards surge that has led to two new momentum highs – impulse precedes impulse.  I’ve noted a bull-flag which formed in late July and has since achieved its price target (I did not draw the legs of the measured move pattern).  Price could be forming a new bear flag pattern, and could be breaking above the flag at the moment.

Notice that volume trailed off during the current ‘downswing’ or retracement back to the 20 period EMA – this behavior is what we would expect for a ‘flag’ or impulse pattern.

Nevertheless, whether the flag completes or not (to the upside), one could enter a place a stop beneath the 20 period EMA for a decent reward to risk ratio.  Perform your own analysis to see if you find additional insights into this stock.

Johnson and Johnson (JNJ) weekly:

We see from the weekly chart that price has broken upwards out of a potential ascending triangle, or perhaps just a plain horizontal resistance line at $68 per share.

The weekly moving averages are in the ‘most bullish orientation possible,’ which is a sign of longer-term strength and bullish optimism.

Momentum has formed a new high via the recent price swing from $64 to $72.

While price certainly could come back and test the break-out level, the overall trend is up and the bullish case is in tact for this beacon of hope in uncertain times.

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