As we close out the first trading week of December, I continue operating through this market with one eye firmly planted on the healthcare sector, which despite the sharp run as of late still offers a few promising prospects among individual stocks.
Shares of Johnson & Johnson (JNJ) rallied steeply off their mid-October lows but spent much of the past month or so consolidating in a tight trading range just near the September highs.
Given the construct of the chart and the broader market structure, JNJ stock stands a good chance of pushing past resistance and to new all-time highs into year-end … and possibly beyond.
Earlier this week, rumors made the rounds that Johnson & Johnson might be looking to sell its artificial sweetener brand Splenda. The company was said to have hired investment bank Goldman Sachs (GS) to explore possible buyers. JNJ stock hardly moved on the news, but it still is worthwhile to note, because an actual sale might move the stock more.
JNJ Stock Charts
Looking at Johnson & Johnson’s price movement since the second half of 2012, we see a stock moving sharply higher along with its sector. We also see that in early 2013, JNJ stock made a major breakout move as it blasted past a horizontal resistance line that dates back to 2005. From that point of view, the best technique from a trading perspective for a stock like this continues to be one of trend-following — we buy the dips or buy for trend continuation moves.
Zooming in on the daily chart of JNJ stock, we see a stock that, unlike the broader large-cap stock market, has spent the past month or so consolidating its sharp V-shaped reversal move off the mid-October lows. This consolidating is taking place just below previous resistance from September, and as I often say, the longer a stock churns below resistance, the better its odds of ultimately breaking higher.
Through that lens, the past month of price action in JNJ stock can also be looked at as a bull flag pattern, which as the name indicates has a tendency to resolve higher.
However, it’s important to keep in mind that this type of trading setup is best not rushed into, and instead, you should wait for the confirmation of a price breakout.
In the case of JNJ, a push past the $109 area (preferably on a daily closing basis) could get enough upside momentum back into this stock for a move toward $113 into year-end. While that might not be a massive move on a percentage basis, the month of December is better used for “smaller” cash-flow trades rather than big swing setups.
And from where I sit, JNJ is ripe for such a trade.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
