The stock began this week with a downside gap. It then drifted down to the $97 area before managing a slight bounce late in Monday's session. On Tuesday, this action was repeated, but by the afternoon, J&J had mounted a much healthier rebound as investors took advantage of the stock's return to its 2015 low. A hold near the February spike low at $97.15 would be a good sign for Johnson & Johnson bulls.
About one month ago, JNJ appeared on the verge of a rally. On May 18, the stock closed above its 200-day moving average with the help of a nice uptick in volume. Johnson & Johnson could add only a bit more to the breakout move before an ugly downside reversal on May 20 turned the tables. On the next day, the shares were back below the 200-day average, leaving behind an ominous failed breakout. The stock has been in a steady decline since, and by early last week, it had fallen below its March, April and May lows.
The Feb. 12 spike low near $97 was significant. The steep decline that had followed the near-vertical rally off the Oct. 15 low ended here, and Johnson & Johnson began a five-month consolidation after putting in that low.
This level has proven to be fairly solid so far this week. A bit more basing action in the $97-to-$98 area may provide the footing needed for Johnson & Johnson to mount a rally similar to the rebound from the February low. If the stock fails to hold $97, another down leg is possible.Click here to see the below chart in a new window.