Johnson & Johnson (NYSE:JNJ) is in it for the long run. But for investors with an eye on a long-haul investment, today’s JNJ stock needs a booster shot of sorts that’s not yet available. Let’s look at what’s happening off and on the price chart, then offer a risk-adjusted determination aligned with those findings.
Source: Sundry Photography / Shutterstock.com
Unless you’ve been quarantining without a television or mobile device, Johnson & Johnson’s emergency usage authorization for its novel coronavirus vaccine – JNJ-78436735 – this past week isn’t a secret. And as the third drug approved in the United States alongside the Pfizer (NYSE:PFE)/BioNTech (NASDAQ:BNTX) vaccine partnership and Moderna’s (NASDAQ:MRNA) mRNA-1273, it’s incredibly welcome news.
In an interview Monday, J&J’s CEO made its commitment known by pledging to provide the single dose vaccine at no profit to the company and emphasized the company is on track to deliver 20 million doses by month’s end and 100 million shots by June.
As well and in his words, JNJ is doing this for the long run as it realizes the virus isn’t going away overnight.
Johnson & Johnson’s commitment and the vaccine’s single shot capability was also enough to inspire the Biden administration to announce the country’s adult population will have enough vaccine available by the end of May. Or will they? Church leaders may be vowing otherwise.
U.S. faith leaders have come out publicly this week and expressed moral concerns about JNJ’s Covid-19 vaccine.
Unlike the other drugs available, JNJ-78436735 was manufactured with the use of cell lines derived from an aborted human fetus. The good news, depending on whom one asks? Catholic Bishops convening at a national conference did stop short of demanding their followers avoid Johnson & Johnson’s vaccine.
Still, it’s an obvious powerful prickly point and possible monkey wrench for herd immunity from Covid-19.
Source: Charts by TradingView
Without picking sides of what’s right and what’s wrong, when it comes to the market and investing, all stocks correct. In more volatile growth stocks those declines often result in corrections of 30%. And that type of price pressure is during healthier investing environments. Today and of late, that idea of where the market actually stands is being tested.
The good news is a large-cap and more defensive company of Johnson & Johnson’s stature will generally see more modest declines, irrespective of risk-on or risk-off market conditions. And historically, using the monthly chart as our guide and eyeballing JNJ stock’s price action, corrections of around 20% are typical.
Today and regrettably, with shares sporting a historically small decline of roughly 10% from January’s peak and visible warning signs on the JNJ price chart, shareholders should be deservedly cautious. Specifically and of concern, the monthly charts reveals a bearish shooting star topping candle formed during January. And right now shares are fast approaching a bearish trade-through signal.
Coupled with a weakly-positioned stochastics indicator and price support backed by trendline and Fibonacci levels at much lower levels (Zone #1: approx. $135 to $145 and Zone #2: approx. $110 to $123), there’s little to suggest buying JNJ today is going to be a profitable investment without first experiencing some avoidable pain.
But what about investors that see things differently? Perhaps they want to start a campaign of accumulating JNJ on weakness. My suggestion would be to use a collar strategy or a modified variation of this hedged spread. One which fits in well with today’s discussion is selling the April $165 call to help finance the purchase of the April $150 / $135 bear put spread for limited, but historically well-aligned downside protection for JNJ stock.
On the date of publication, Chris Tyler does not hold, directly or indirectly, positions in any securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
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