Immediately after Johnson & Johnson's (JNJ) - Get Johnson & Johnson (JNJ) Report sharp earnings-inspired selloff on Jan. 24, the stock regained its footing. As last month came to a close, JNJ had avoided a deep breakdown, while maintaining its very narrow range. This week, with the help of five straight gains, the stock is bumping up against heavy resistance near the top of its consolidation pattern. A powerful breakout through the $117.50 area would clear an important hurdle and set shares up for a fresh rally leg.
Back on Nov. 9, JNJ left behind an ominous post-election-spike high. It would take some time for the stock to rebound from the damage of the steep selloff that followed. By early December, the stock was trading at fresh six-month lows after multiple days of heavy distribution in November. It managed to rebound in early December, but the upside was limited by the stock's 200-day moving average. This heavy overhead resistance level capped the December, January, and up to this point, the February peaks. Once this area is convincingly taken out, JNJ has plenty of room to run on the upside.
In the near term, JNJ investors should consider the stock a low-risk buy near current levels. A close above the $118.00 area would be an key hurdle as a new rally leg starts. As this develops, JNJ has a very solid layer of support in place between last week's high of $116.00 and its scooping 50-day moving average near $114.50. On the downside, a close back below the February low would indicate the 200-day moving average is still applying pressure.