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How Johnson & Johnson Can Break Out to New Highs on Earnings

Johnson & Johnson has had a good run over the past week. If it continues higher, the stock may break out on earnings. Let's look at the chart.

Johnson & Johnson  (JNJ) - Get Johnson & Johnson (JNJ) Report continues to trade well, bubbling just below its prior all-time high. 

That has investors wondering if the healthcare juggernaut can notch new records after reporting earnings on Tuesday before the stock market opens. In fact, the charts are looking pretty familiar.

Shares of J&J traded down into the 200-day moving average ahead of earnings in July. Then the stock began to climb higher in anticipation of the results. While the upside reaction wasn’t overwhelmingly bullish, it was still positive.

It’s what allowed shares of Johnson & Johnson to continue higher, ultimately making new highs in early September.

Will the stock repeat its actions?

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Trading Johnson & Johnson

Daily chart of Johnson & Johnson stock.

Daily chart of Johnson & Johnson stock.

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Johnson & Johnson is working on its fourth straight daily rally, while Monday’s strength should be no surprise given the broader market’s surge.

The stock put in a higher low in October vs. its September low, while reclaiming the 20-day and 50-day moving averages with its recent rally. That low in September came on a test of the 200-day moving average, which has been support so far this summer.

When measuring the September range, J&J shares were able to hit the 78.6% retracement on Monday, near $152.70.

Now bulls want to see a bullish rotation, not just over the 78.6% retracement, but over key resistance near $155. A move over this zone is vital for a breakout to occur.

If Johnson & Johnson can clear this mark and close above it, it opens the door to the $161 to $163 area. Near $161 it finds the 123.6% extension from the March to February range, while near $163 the stock will find the 161.8% extension for the September range.

On the downside, it will be encouraging to see the 20-day and 50-day moving averages hold as support, along with uptrend support (blue line). However, the must-hold level is the 200-day moving average.

That mark has proven to be support and should it falter, bulls could be facing a bad situation, technically speaking.