Can Johnson & Johnson Keep Soaring Higher?
Shares of Johnson & Johnson (JNJ) - Get Report reached new all-time highs yesterday with the help of a 1.7% surge. This earnings-inspired rally extends the stock's powerful post-Brexit rebound to just over 8.5%.
There's no question that Johnson & Johnson is hitting on all cylinders, but further upside in the near term could be quite limited. For patient investors, it may prove wise to wait out a healthy pullback before jumping on the Johnson & Johnson train.
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Johnson & Johnson has been tracing out an almost completely uninterrupted rally since the mid-January low. This impressive performance includes six straight higher monthly highs as shares moved past the 2014 and 2015 peaks. Since April 15, Johnson & Johnson has been pushing further into new all-time-high territory while remaining below overbought conditions based on its daily moving average convergence/divergence indicator. In fact, just prior to Johnson & Johnson's early June breakout, the MACD had returned to neutral. Of late, though, this setup has changed. Both the daily and weekly MACD indicators have reached extremes. As measured by the weekly MACD, Johnson & Johnson has never been more overbought.
While there's no doubt that Johnson & Johnson still has a great deal of momentum in place following Tuesday's surge, big gains from current levels are unlikely. A shallow pullback may be all that's needed to relieve enough pressure for the rally to resume. If Johnson & Johson begins to roll over, the June high near $121.40 will prove to be a key level. This is the initial support area, but a break below here could gather steam quickly considering the extreme overbought reading.
Once through the June low, a retest of the 50-day moving average is the next target. A pullback to this area, just above $117, would offer a low-risk entry opportunity for patient investors.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author was long JNJ.