With virtually every stock market around the globe either already broken down or sitting precariously on a ledge of support there are times when it makes sense to press down on the gas pedal of risk but this is not one. Scouring hundreds of charts this week I could find little on the long side (plenty of shorts though) that interest me except for a scant few, one being Johnson and Johnson (JNJ).
It’s likely everyone has heard of JNJ and have used one of their products in their lifetime (Tylenol, Listerine, Bandaid, Visine and Baby Shampoo to name a few). An American bellwether, they continually rank as one of America’s most trusted and admired companies from their first product release in 1886.
Unlike most stocks, instead of faltering and creating a lower high after last September’s correction, its price has powered higher and is sitting just a few pennies under its all-time high. In addition to constructive price movement it has formed a cup and handle pattern, the (red) 200 day moving average is positive and RSI momentum (in upper pane) is above the mid line and rising. These are all signs of bullish strength. In a positive investment environment I would be a buyer on a confirmed break above the red horizontal resistance line. I am convinced though if the broader markets were to continue to exhibit weakness and go on to establish lower lows, JNJ would be drug down alongside.
I could be wrong and JNJ powers higher while the broad market chops around trying to find a trend or declines. A nimble trend following trader should find this setup potentially very attractive. But if your main goal is to preserve wealth, I have learned in conflicting situations like these, the odds favor those who sit on their hands and demonstrate patience. Sure, sitting on your hands may have you forego potential profits. But when the broad market decides it’s time to turn higher there will be plenty of opportunities and you will have a rising market as a tailwind rather than a falling one in your face.