Johnson & Johnson (JNJ) has been correcting to the downside these past six weeks. Has this pullback just about run its course or will we see more sideways to lower price action before buyers return to try to push prices to new highs?
Let's carefully pull the band aid off the charts and indicators to see what lies below. Let's start with a daily chart and then back out to a weekly chart and finally a Point and Figure chart.
In this daily bar chart of JNJ, above, we can see the up and down swings of the past 12 months. There is a correction from August to February. This pullback was not deep, but the time period helped to correct the advance from late 2015 to mid-2016.
JNJ has a mixed position with respect to the popular moving averages. It is testing the rising 50-day moving average line from below and remains above the 200-day moving average line, which is showing signs of flattening.
The daily On-Balance-Volume (OBV) line moves up and down with the price action, but prices made a higher low in January compared to December and the OBV line made a lower low in late January vs. December. This difference could be given a bullish spin, in that the lower low in the OBV line suggests that selling was more aggressive, however prices held in better. So despite the selling pressure, JNJ made a high low.
More recently, the OBV line has moved down with prices the past six weeks and a turn to the upside for the OBV would be a welcome sign of the return of bulls. In the lower panel is the 12-day momentum study, which shows a small bullish divergence with higher lows the past month vs. lower price lows. This divergence signals the slowing of the price decline.
In this weekly bar chart of JNJ, above, we get mostly positive signals. Prices are above the 40-week moving average line, but it looks like the line has begun to flatten. The weekly OBV line is very positive and shows a strong rise from August 2015 to date.
The trend-following Moving Average Convergence Divergence (MACD) oscillator moved to a buy above the zero line in February. The two lines that make up this indicator have narrowed, but they have not crossed.
In this Point and Figure chart of JNJ, above, we find no sign of a major top, and the recent consolidation does not suggest more weakness. A rally to $130 will be a fresh breakout and give us a new upside price target around $164.
Bottom line: it is hard to say when JNJ will resume its uptrend, so I would only look to buy strength. Traders could go long on gains above $128 and then risk a close below $122. The low $160s is our price target after we break out on the topside.