Johnson Controls Inc (NYSE:JCI) took a ride last week after the jack-of-much-tech manufacturer reported a mixed fiscal second-quarter earnings report. As a result of the rally, however, JCI stock broke out of a 17-month-long technical base, which should have soundly bullish implications for coming weeks if not months.
Specifically, Johnson Controls earnings for Q2 came to 77 cents per share, beating the 74 cents estimated by analysts. Revenues, however, declined nearly 3% to $9.2 billion, well under Wall Street expectations for $10.1 billion — mostly blamed on the strong U.S. dollar.
Moreover, JCI’s earnings guidance for Q3 came in line with estimates, but the company was a bit more conservative on the full-year outlook.
As I often say, however, the reaction to the news from a trading perspective carries more weight than the news itself, and as such the nearly 4% rally in JCI stock last week that pushed it to fresh all-time highs speaks volumes.
JCI Stock Charts
Before looking at last week’s rally in more depth, let’s first understand the positive construct of JCI stock through the longer-term lens of the weekly chart that stretches back to 2007.
From this perspective, we see that after an early 2009 capitulation during the financial crisis, JCI stock began an orderly ascent that importantly formed a higher low during the summer of 2012. By October 2013, Johnson Controls had worked its way back up to a line of resistance around the $43-$44 area that had been in place since late 2007 and also acted as resistance in the first half of 2011.
Later in October 2013, the stock finally broke past this multiyear resistance, but by December the stock topped out again and settled into its next bigger consolidation phase. The next consolidation phase, which we will see better on the next chart, mostly kept above the previous $43-$44 resistance area (old resistance holding as support), with the exception of a quick washout last October.
Zooming in on the past 17 months of price action, we see that the bigger-picture consolidation phase took place in a well-defined inverse head-and-shoulders pattern, with the “head” of the formation being last October’s V-shaped bottoming. The formation has an equally clearly defined neckline, or line of resistance (black line) around the $51.50-$52 area, which had been tested several times since late 2013.
Ultimately, the pressure against this line became t0o great, and last week’s post-earnings rally pushed JCI stock past resistance and out of the bullish inverse head-and-shoulders formation.
This move promises plenty of higher advances through a multiweek/multimonth lens, with a next upside target near $56.
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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.