Johnson & Johnson: Last Week's Move Supports More Upside
Dragonfly Capital | Feb 01, 2016 07:31AM ET
Here is your Bonus Idea with links to the full Top Ten:
Johnson & Johnson (N:JNJ) stock ran higher from a base around 55 in mid 2012 until it peaked at around 109 at the end of 2014. From there it pulled back near 100 and consolidated for most of 2015, until the market sank in August. It was one of those stacks that had a silly drawdown intraday, losing 15% early before rebounding and closing the day nearly unchanged.
That drawdown will be discarded as a machine driven move by many but technicians saw a retest at the rising 200 day SMA, and a nearly 50% retracement of the leg higher from 2012. The RSI bottomed and the MACD did as well crossing up just a couple weeks later. In a nut shell, a reset.
Since then the price has moved back over 100 and made a higher high in a failed break out in December. The pullback from there made for a higher low at 95 with a Tweezers Bottom and rocketed higher last week back to resistance. On a longer timescale this makes for 18 months of consolidation after the long run higher.
Shorter in, the move last week on long strong candles supports more upside. And momentum indicators are bullish and rising. A push over resistance and through 105 looks very bullish in the chart. There is resistance at 104.30 and 105 followed by 106.50 and 109. Support lower may be found at 103 and 101 before 100 and 97 then 95. Short interest is low at 1%.
Looking at the options chains there is virtually no open interest above the current price this week. This might draw the stock to the 103 level where there is the biggest size. The February (regular monthly February 19 Expiry) options also show most of the open interest below the current price but with the biggest single Strike at 105 on the call side. This goes through ex-date on the 19th and with an almost 3% dividend yield it is important to watch for early exercise.
The April options, past the next earnings date, show stacked open interest from the 70 strike through the 105 strike on the Put side. But the 52,000 in open interest on the call side at 105 is nearly double all the put open interest combined. Options are showing an expected cap at 105 over the next 3 months. As further proof, the April 105 Straddles at about $6.60 suggest the price will not exceed 111.60 or 98.40 over the next 3 months.
Johnson & Johnson
Trade Idea 1: Buy the stock on a move over 105 with a stop at 100.
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Trade Idea 2: Buy the stock on a move over 105 with a April 105/100 Put Spread (Offered at $2.30 late Friday) and selling the April 110 Calls (80 cents) as a collar for low cost protection.
Trade Idea 3: Buy the April 105/110 Call Spread ($1.65) and sell the April 95 Puts (99 cents) for a Call Spread Risk Reversal.
Trade Idea 4: Sell the February 100/105 Strangle for a 1.92 credit.
After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which, after completing a horrible January at least saw it end on a good note in the equity markets.
On to February and look for gold to continue higher in the short run while crude oil maintains a short run bias higher in the downtrend. The US Dollar Index continues to look ready to explode higher while US Treasuries may be ready to consolidate in the uptrend. The Shanghai Composite still looks like it is headed lower while Emerging Markets are biased to the upside in their downtrend.
Volatility is drifting lower towards normal levels relieving some of the pressure on the equity index ETFs N:SPY, N:IWM and O:QQQ. Their charts all had great moves higher Friday and look to continue in the short term, while the weekly charts showed strong signals of reversals higher. The QQQ is the only short term chart that did not break resistance. Use this information as you prepare for the coming week and trad’em well.
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