In our recent review of Johnson & Johnson (JNJ) , and we gave this strategy "While I can see some early divergences the fact remains that JNJ is still in an uptrend. Traders who are still long, despite my analysis, should raise stop protection to a close below $130." With Action Alerts PLUS holding JPMorgan Chase (JPM) , Berkshire Hathaway (BRK.A) (BRK.B) and Trifecta Stocks holding Amazon (AMZN) disrupting the health care space this morning a fresh look at JNJ is a good idea.
In this daily bar chart of JNJ, below, we can see the pattern of higher lows and higher highs or the simple definition of an uptrend. That pattern could be upset this morning. Prices are above the rising 50-day moving average line but a test and break of that indicator is possible. The volume of trading has been increasing this month and the On-Balance-Volume (OBV) line has been rising. A rising OBV line tells us that buyers of JNJ have been more aggressive with heavier trading being seen on days when JNJ has closed higher.
In the lower panel is the 12-day momentum study, which shows lower highs from October to January while prices over the same time frame made higher highs. This difference in movement is a bearish divergence -- price is doing one thing while the indicator is doing something else. A weakening momentum picture can foreshadow weaker prices.
In this weekly bar chart of JNJ, below, we can see a rally from late 2015. Prices are above the rising 40-week moving average line and the line intersects just above $135 now. The weekly OBV line has been neutral since July. The weekly Moving Average Convergence Divergence (MACD) oscillator is poised for a new take profits sell signal.
In this Point and Figure chart of JNJ, below, we can see the uptrend. A decline to $139.38 would start to weaken this chart.
Bottom line: Tuesday is starting with many stocks in the red. JNJ could get pressured (when they raid the "house" they take all the "ladies") to break the 50-day average line and support around $140. Traders should consider raising stop loss protection to a close below $135.