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Buy Johnson & Johnson Stock on Split-Company Dip?

Johnson & Johnson stock gapped higher on news it would split the company into two units. It's fading now, so do investors buy the dip?

Johnson & Johnson  (JNJ) - Get Johnson & Johnson (JNJ) Report shares jumped out of the gate today, rallying almost 3% shortly after Friday's open.

The early strength in the stock gave the Dow a nice boost at the open, too.

Sellers, however, were quick to step in — or put another way, buyers were quick to step out. And J&J shares are now up just 1% on the day and are barely off the session low.

Investors woke up to news that Johnson & Johnson plans to split into two companies in an effort to unlock value for holders.

General Electric  (GE) - Get General Electric Company (GE) Report recently announced similar plans (and also faded from the highs after the announcement). And Toshiba TOSYY similarly is breaking up.

While Moody’s has said the split could put J&J’s triple-A rating at risk, that doesn’t seem like enough of a reason to sell the stock.

Not when the company is performing so well, as noted when it reported earnings almost a month ago.

That said, the stock has not been performing all that well. Today’s action reminded investors what a nice rally feels like, but it was too short-lived.

Can it continue higher?

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Trading Johnson & Johnson Stock

Daily chart of Johnson & Johnson stock.

Daily chart of Johnson & Johnson stock.

With Friday’s gap up, Johnson & Johnson stock opened above the 50-day and 200-day moving averages, as well as the weekly VWAP measure.

But the shares could not reclaim the 21-week moving average. That doesn’t mean the stock was doomed from the start, but it’s an area of interest on the chart.

If a fade was in play, investors would have wanted to see J&J stock find support at the 200-day moving average and the weekly VWAP measure. 

That would have been a great area for some consolidation, followed by a potential push over today’s high and the 21-week moving average.

The latter part of that setup is still possible if the stock can go on to reclaim the 200-day moving average and the $165.50 to $166 area.

A move over the 21-week moving average will have us looking at the $170 to $172.50 area as our next zone of interest.

On the downside, let’s keep an eye on the $163 to $164 area. 

There Johnson & Johnson stock finds the declining 50-day moving average, but the rising 10-day and 21-day moving averages. A test of this area will also fill today’s gap.

A move below this week’s low near $162 and sub-$160 could be on the table.

For now, watch the 200-day on the upside and $163 to $164 area on the downside.