Here is your Bonus Idea with links to the full Top Ten:
Johnson & Johnson (NYSE:JNJ) pulled back the first two weeks of the year and found a bottom when the price fell below the 200 day SMA. A quick run higher led to a pullback to a higher low. In mid February it started higher again and did not look back. Over the next two months it would rise 11% to a high at 114 in April. The last two days of that run saw a gap higher and some topping tails.
It has pulled back since then, ending Friday above that gap and printing a Hammer candle, a possible reversal. The pullback also has brought the price back into the Bollinger Bands®. On close inspection the trend line that was resistance as it was rising before the gap up is now acting as support, a retest. The price is also close to the rising 20 day SMA that has acted as support since February.
The RSI is pulling back but in the bullish zone while the MACD is crossed down. These look for short term downside but can flip quickly. There is support lower at 111.50 and 111 followed by 109.50 and 108 before 105. Resistance above stands at 114. Short interest is low under 1%. The company is expected to report earnings next on July 19th and the stock goes ex-dividend May 20th.
The chart has clear levels to look for a reversal higher against and to confirm a continuation lower. Perhaps you have owned it for that run, or missed it and are lamenting it. Well time to dry up those tears and look for a way in.
Looking at the options chains this week sees the biggest open interest above at 113 on the Put side. The May options have very large open interest at the 110 strike, suggesting a possible pullback. June has a very large open interest at the 115 strike on the call side. This reads for a possible short term pullback to continue and then a move higher.
Johnson & Johnson
Trade Idea 1: Buy the stock on a move over 112.75 with a stop at the rising trend line or the 20 day SMA.
Trade Idea 2: Buy the stock with a May 112/110 Put Spread and selling a June 115 Covered Call (30 cents for the collar).
Trade Idea 3: Buy the May 112/110 1×2 Put Spread for 12 cents.
Trade Idea 4: Sell the May 110/112 Strangle for a $2.10 credit.
Trade 1 is a straight buy following a confirmed reversal. Trade 2 adds a collar for protection for a pullback to that large open interest in May at 110 and selling the covered call at the large open interest in June. Trade 3 is a way to buy the stock at 108 should it pullback to 110 at may Expiry. Trade 4 looks for the large open interest to draw the stock to 110 at Expiry, a pin, and possibly give an entry at 108.
After reviewing over 1,000 charts, I have found some good setups for the week. This week’s list contains the first five below to get you started early. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which as the calendar turns to May sees the equity markets are looking worn out and in general better to the downside.
Elsewhere look for gold to continue its uptrend while crude oil moves higher as well. The US Dollar Index is on the cusp of a major breakdown while US Treasuries churn with a bias to break to the upside. The Shanghai Composite looks to continue to consolidate along with Emerging Markets but look for the latter to be biased to eventually break that consolidation higher.
Volatility looks to remain subdued but not at the lows keeping the bias higher for the equity index ETFs NYSE:SPY, NYSE:IWM and NASDAQ:QQQ, despite the moves lower. Their charts are more mixed with the QQQ firmly heading lower, the SPY pulling back in its uptrend and the IWM stalling. Use this information as you prepare for the coming week and trad’em well.
Disclaimer: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog. Please see my Disclaimer page for my full disclaimer