How to Trade Johnson & Johnson Stock After the Report

Johnson & Johnson gapped above its quarterly and monthly pivots at $139.66 and $140.61, which could lead to a new high.
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After Johnson & Johnson's  (JNJ) - Get Report earnings report beat estimates, the stock opened higher and gapped above its quarterly and monthly pivots at $139.66 and $140.61. 

This strength is supported by a positive weekly chart.

J&J extended its earnings-per-share winning streak to 31 consecutive quarters. But the health-care giant and component of the Dow Jones Industrial Average also said the coronavirus pandemic will hurt its full-year guidance. 

Boosting its dividend was a positive. Here’s the coverage of this earnings report as compiled by TheStreet.com.

At today’s open at $145.42, the stock is down 0.3% year to date but is in bull-market territory 33% above its March 23 low of $109.16. J&J is 5.9% below its Feb. 6 all-time intraday high of $154.50.

The stock is recovering from a bear-market decline of 29% from its all-time high of $154.50 to its March 23 low of $109.16.

The stock is reasonably priced, with a p/e multiple just above 16 and a dividend yield of 2.69%, according to Macrotrends.

J&J had been struggling with fines related to its role in the opioid crisis and talcum-powder cancer charges.

Johnson & Johnson is a holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells the stock? Learn more now.

The Daily Chart for Johnson & Johnson

Daily Chart for J&J

Daily Chart for J&J

Courtesy of Refinitiv XENITH

The daily chart for J&J shows the stock moving sideways before solidifying upward momentum beginning on Nov. 15. 

This led a golden cross to form on Dec. 23, when the 50-day simple moving average rose above its 200-day simple moving average. That's an indication that higher prices will follow. 

This tracked the stock to its all-time high of $154.50 on Feb. 6.

The stock is below its semiannual and annual risky levels at $161.71 and $166.58, respectively. Both are above the chart.

Note the 29% slump from its all-time high of $154.50 to its March 23 low of $109.16.

The move above the 200-day SMA on April 6 set the stage for a positive reaction to earnings.

The stock gapped above its quarterly and monthly pivots at $139.66 and $140.61 occurred this morning on the positive earnings report.

The Weekly Chart for Johnson & Johnson

Weekly Chart for J&J

Weekly Chart for J&J

Courtesy of Refinitiv XENITH

The weekly chart for J&J ended last week positive, with the stock above its five-week modified moving average of $138.27. 

The stock moved above its 200-week simple moving average, or reversion to the mean, at $131.36 since the week of April 3.

The 12x3x3 weekly slow stochastic reading is projected to rise to 50.66 this week from 41.09 on April 9.

At the end of January this reading was above 90 on a scale of 0 to 100, which put the stock in an inflating parabolic bubble formation. The bubble popped.

Trading Strategy: Buy weakness to the monthly and quarterly pivots at $140.61 and $139.66, respectively, and reduce holdings on strength to its semiannual and annual risky levels at $161.71 and $166.58, respectively.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019 were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.

Second quarter 2020 and monthly levels for April were established based upon the March 31 closes.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.