Johnson & Johnson Stops Selling Talc Baby Powder in U.S. - Here's the Trade

Buy Johnson & Johnson on weakness to its quarterly value level at $139.66 and reduce holdings on strength to its monthly pivot at $151.49.
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Johnson & Johnson  (JNJ) - Get Report has faced thousands of lawsuits related to its talcum-based baby powder on claims it caused cancer in women who use it. 

On Tuesday the New Brunswick, N.J., healthcare giant said it would stop selling this brand in the U.S. and Canada. 

The stock is slightly higher on Wednesday, but it appears that it will stall shy of its monthly risky level at $151.49.

Despite this suspension, the company indicated that it would continue to defend the powder and its safety. For more information on this subject read this analysis on TheStreet.com.

J&J is a component of the Dow Jones Industrial Average. It has a winning streak of beating earnings-per-share estimates since October 2012, including its latest report on April 14.

The stock is reasonably priced with a p/e multiple of under 17 with a dividend yield of 2.52%, according to Macrotrends.

The stock opened at $149.75 on Wednesday, which has the stock up 2.7% year to date. The stock is 4.8% below its all-time intraday high of $157, set on April 23. 

J&J is also in bull-market territory 37% above its March 23 low of $109.16.

The Daily Chart for Johnson & Johnson

Daily Chart for JNJ

Daily Chart for JNJ

Courtesy of Refinitiv XENITH

The daily chart for J&J shows that the stock was moving sideways until a golden cross was confirmed on Dec. 23. 

This buy signal occurs when the 50-day simple moving average rises above its 200-day simple moving average. A move of this sort indicates that higher prices will follow.

The golden cross was violated on March 12 as the stock plunged to its March 23 low of $109.16.

A sharp V-shaped bottom quickly emerged, and the stock was back above the golden cross on April 13. 

Then on April 14, the stock gapped higher on a positive reaction to its latest earnings report. This led to the all-time high of $157 set on April 23.

The stock was well-positioned on April 13 with a close above its quarterly pivot at $139.66. Since the high its monthly pivot for May at $151.49 has been a magnet.

The Weekly Chart for Johnson & Johnson

Weekly Chart for JNJ

Weekly Chart for JNJ

Courtesy of Refinitiv XENITH

The weekly chart for J&J is positive but overbought, with the stock above its five-week modified moving average of $146.45. 

The stock has been above its 200-week simple moving average, or reversion to the mean, at $132.10 since the week of April 10. That was another pre-earnings positive.

The 12x3x3 weekly slow stochastic reading is projected to rise to 81.08 this week from 79.38 on May 15. The reading above 80 indicates the overbought condition.

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. 

This favored the downside we saw going into March 23.

Trading Strategy: Buy Johnson & Johnson on weakness to its quarterly value level at $139.66 and reduce holdings on strength to its monthly pivot at $151.49.

If the stock breaks out above $151.49, the bull-market gain can extend to new highs as its semiannual and annual risky levels are $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.

The second quarter 2020 level was established based upon the March 31 close.

The monthly level for May was established based upon the April 30 close.

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.