Can Johnson & Johnson Stock Keep Climbing?

A bearish divergence can sometimes foreshadow a correction.

Healthcare giant Johnson & Johnson (JNJ) got a number of price target bumps from sell-side fundamental analysts this week following its latest earnings report. With the shares trading near their highs, let's dig into the charts and indicators to see if the current price advance has staying power.

In the daily bar chart of JNJ, below, we can see some positive technical developments. Prices have climbed higher in the past few weeks even as the broader market averages have been weak. Prices broke out over the August zenith. JNJ is trading above the rising 50-day moving average line and the rising 200-day moving average line.

Trading volume has been active but not showing us a rising pattern. The On-Balance-Volume (OBV) line shows some weakness into late February followed by a slight rise the past seven weeks.

The 12-day price momentum study shows lower highs from March into April even as prices made higher highs -- this is a bearish divergence and tells us that the pace of the rise is slowing. A bearish divergence can sometimes foreshadow a correction.

 

In the weekly Japanese candlestick of JNJ, below, we see a mixed picture. Prices are in a longer-term uptrend above the rising 40-week moving average line. The most recent candle pattern shows us both an upper shadow and a lower shadow giving a slight pause in the price action.

 

The weekly OBV line shows us a long-term rise and is much more bullish than the daily line. The Moving Average Convergence Divergence (MACD) oscillator is bullish.

 

 

In this daily Point and Figure chart of JNJ, below, we can see a potential upside price target in the $239 area.

 

 

In this weekly Point and Figure chart of JNJ, below, we can see a slightly higher price target of $241.

 

 

Bottom-line strategy: We said to avoid the long side of JNJ in our Jan. 24 review ahead of earnings. Prices have climbed to new highs but momentum is slowing. JNJ is showing independent price strength but I remain cautious with this bearish divergence.

 

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