Johnson & Johnson (JNJ) is in the news this morning. The company announced that it has selected a lead Covid-19 vaccine candidate. A Phase 1 clinical trial should launch in September. The first batches of product could be available for emergency use in early 2021.
Let's check the charts of JNJ to see if investors will react positively to the news.
In this daily bar chart of JNJ, below, we see a bearish picture but that is not the whole story. Prices broke below the lows of August, September and October. The slopes of both the 50-day moving average line and the 200-day moving average line turned negative.
The trading volume in March looks like it doubled from February and the On-Balance-Volume (OBV) line sank to a new low for the past 12 months.
The Moving Average Convergence Divergence (MACD) oscillator has been in negative territory since late February and still has not yet generated a cover shorts buy signal. This picture could change quickly but as of Friday's close the pattern was not constructive.
In this weekly bar chart of JNJ, below, we went back five years to gain some perspective. Prices broke down below prices that had acted as support going back several years. JNJ retested an area from late 2016.
The volume pattern does not show anything meaningful to me but the weekly OBV line shows a long sideways pattern and hardly any recent weakness. This steady OBV line suggests that longer-term investors in JNJ have stayed put with their positions. Pretty interesting when the broad market declined so hard and so fast.
The MACD oscillator is pointed down but still above the zero line on this longer time frame.
In this weekly Point and Figure chart of JNJ, below, we manipulated prices to give us the answer we wanted (I think this is the definition of quantitative analysis). In this chart JNJ has reached a downside price target and there looks to be good chart support (volume by price bars on the left scale) to suggest these lows will hold.
Bottom line strategy: JNJ has survived many scrapes and setbacks over the years and long-term investors have been rewarded for their patience. While the short-term picture of JNJ suggests more risk is possible, the longer-term patterns are constructive. Buy available weakness and risk two closes below $111 for now.
Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
