Chart of the Day – $JNJ

by Enis August 22, 2013 1:19 pm • Commentary

Johnson and Johnson has been one of the best performing stocks among the mega-caps this year.  It’s up 26% in 2013, well outpacing the performance of the S&P 500 index.  And JNJ is considered a “defensive” stock, so that’s especially impressive given its normally lower beta.

Given its leadership position, its recent weakness is worth noting, though no long-term technical damage has been done just yet.  JNJ really gained strength to start the year when it broke its decade-long resistance in the 70-72.50 area:

JNJ monthly chart, Courtesy of Bloomberg
JNJ monthly chart, Courtesy of Bloomberg

Since that break, the stock has been a rocket ship, displaying incredible trend strength throughout the year.  The stock’s recent weakness is testing its 100 day moving average for only the second time this year:

Daily chart of JNJ, Courtesy of Bloomberg
Daily chart of JNJ, 50 day ma in pink, 100 day ma in green, 200 day ma in black, Courtesy of Bloomberg

The 100 day ma comes into play around $87.25, or about a dollar below JNJ’s current price.  The uptrend remains in tact.

However, there is a bit more reason for concern on the weekly chart.  The weekly RSI momentum made divergent when JNJ made new highs in July and August, shown by the red arrow in the lower panel:

Weekly chart of JNJ, with weekly RSI momentum on lower panel, Courtesy of Bloomberg
Weekly chart of JNJ, with weekly RSI momentum on lower panel, Courtesy of Bloomberg

That large divergence is an initial warning sign.  However, the weekly RSI still made it well into overbought territory in July and August, so it’s possible we see one more run higher on even lower momentum later this year.

Overall, JNJ’s strong, uninterrupted run has ended.  It’s close to testing an important level near $87.20.  But I would put the odds on one more move higher before the end of the year.  Of course, from what level the bounce comes is much less clear.