2023 has been a massive disappointment for Johnson & Johnson (JNJ) investors so far.
JNJ rallied strongly into the end of last year. But the conglomerate – which is behind widely used healthcare products like Band-Aid and Tylenol – reversed sharply in January.
By the time JNJ bottomed out in March, it had dropped 17% from its January high. And it lost around $80 billion from its almost half-trillion valuation.
Since then, JNJ has flipped all over the place as it struggled to find direction (which you can see on the chart below).
So with JNJ recently trading within a few dollars of its yearly lows, today I want to look into what’s coming next…
Diverging and Converging Patterns
On the chart below, you can see JNJ’s huge fall at the start of January.
The growing divergence between the JNJ stock price (left upper orange line) and the relative strength index (RSI, left lower orange line) led to the slide.
When momentum (RSI) is steadily falling like this, it will eventually pull a stock lower.
Johnson & Johnson (JNJ)
Source: e-Signal
As the chart shows, that fall accelerated when the RSI broke into, and remained, in the lower half of its range.
The 10-day moving average (MA, red line) crossing steeply below the 50-day MA (blue line) confirmed JNJ’s downtrend. And both MAs tracked lower.
This time, though, a converging pattern (right upper and lower orange lines) caused JNJ to establish a base it could bounce from…
From there, JNJ began to swing wildly in a broad sideways pattern in April.
You can gauge the strength of these swings by the number and sharp angle where the 10-day MA crisscrossed the 50-day MA.
The other thing you’ll notice is the action of the RSI…
Those sharp reversals that set off each of JNJ’s swings coincided with a clear switch in momentum.
Take another look:
Johnson & Johnson (JNJ)
Source: e-Signal
During JNJ’s short-term peak in April, the RSI reversed from overbought territory, sending JNJ lower.
And in early June, the RSI formed a “V” and rallied from oversold territory (left red circle), causing JNJ to bounce.
As the chart shows, that pattern repeated in September (right red circle), sending JNJ higher.
That rally initially looked promising. But the move stalled when the RSI was unable to break up through resistance (green line).
With the RSI reversing instead, JNJ sank to within a few dollars of its March lows.
Now, the RSI is in oversold territory again. So what am I looking for from here?
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An Emerging Rally?
On the chart, you can see that the RSI has recently tracked higher out of oversold territory.
I’ll be watching this action closely over the coming week.
If the RSI can keep rallying back up to resistance (green line), then we could soon see JNJ trading around the $160 level again.
For JNJ to rally beyond that, we’d need to see the RSI break into the upper half of its range – just like we saw when JNJ rallied in late March, June, and July.
We’ll also need to keep a close watch on our two MAs. The 10-day MA rallying up toward the 50-day MA would add further weight to an emerging rally.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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