JNJ Stuck in Consolidation Phase After Earnings Report

by Serge Berger | October 16, 2013 9:02 am

beatthebell_185x185[1]Health care products manufacturer Johnson & Johnson (JNJ[2]) reported its third quarter earnings yesterday, Tuesday October 15th.

The company’s quarterly profits came in at $2.98 billion versus $2.97 billion in the year ago period. On a per share basis, the company came in one penny shy year-over-year, at $1.04 per share versus $1.05 per share. One the other hand, the company’s top-line revenue climbed to $17.58 billion versus $17.05 billion YOY and beat analyst estimates of $17.45 billion.

Excluding special items, the company earned $1.36 per share in the quarter, which was four cents better than the $1.32 per share analysts were expecting. Furthermore, JNJ raised its fiscal year 2013 guidance from $5.40-5.47 to $5.44-5.49. The stock’s reaction on Tuesday was fairly muted but does provide an opportunity to set up better long-side opportunities.

As a big health care products provider with products in the majority of U.S. households, JNJ delivers fairly stable and consistently growing top-line revenue numbers every year. But the stock’s price action over the past twelve months, more closely resembles that of a cult stock being chased by the trend-following crowd.

On the multi-year chart stretching back to early 2010, we see that the stock was largely stuck in a moderately up-trending channel for some time until a major breakout occurred in January of this year, aided by a sharp incline in the broader market. Those following the stock closely would have noticed a tightening in its trading range from June 2012 into early January 2013, as the stock began to coil up at the upper end of the multi-year trading range, thus signaling the underlying bid in the stock.

jnj multi year
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After a rally of more than 30%, the stock finally topped in early August and slipped into a consolidation phase. Looking at the longer-term chart however, one could argue that the stock already began its initial phase of a topping/consolidation period in May and that the June/July rally merely served as an exhaustion/over-extension rally.

On the daily chart, the topping/consolidation phase arguably took the shape of a bearish head-and -shoulders pattern, marked by the blue bubbles. You can see the left shoulder, head and right shoulder. Last week, however, the stock bounced strongly off its neckline support (black diagonal) and by Friday had broken its diagonal resistance (red dotted line) from the August highs. Then, with yesterday’s bounce after earnings, JNJ jumped right into a lateral resistance point at $91.60.

jnj daily
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The stock has shown good strength in recent days but arguably remains in the multi-month consolidation phase until Tuesday’s highs near $91.60 can be overtaken.

Serge Berger is the head trader and investment strategist for The Steady Trader[3]. Sign up for his free Weekly Market Outlook Video here[4]. As of this writing, he did not hold a position in any of the aforementioned securities.

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