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TheStreet Open House

5 Big Trades You Can't Miss This Week

Johnson & Johnson

Another pharmaceutical name that's looking bearish right now is Johnson & Johnson (JNJ). The blue-chip health care company is starting to look "toppy" thanks to a head and shoulders pattern that's starting to show itself in the long-term. From here, the price level to watch is $82.

>>5 Stocks Poised to Pop on Bullish Earnings

The head and shoulders is a bearish reversal pattern that indicates exhaustion among buyers. The pattern is formed by two swing highs that top out around the same level (the shoulders), separated by a bigger peak called the head; the sell signal comes on the breakdown below the pattern's "neckline" level, which is right at that $82 price level. Until then, it's not a high probability trade yet.

Lest you think that the head and shoulders is too well known to be worth trading, the research suggests otherwise: a recent academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in "profits [that] would have been both statistically and economically significant." That's reason enough to keep a close eye on that $82 neckline.

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