With the market ‘crashing’ down -- nearly 3 points on the S&P 500 ETF (ARCA:SPY) -- the rhetoric from the bearish side is heating up. They may have their way finally, but I'm not yet convinced. So as the modest pullback continues I am looking for candidates to buy on the dip.
One that stuck out Wednesday was Johnson & Johnson (NYSE:JNJ), which was hammered down more than 2.3% as the S&P 500 shed just over 1.3%. That's a lot for a company of its size to outperform to the downside.
Play The Pullback
Technically, I see two triangles that have traced out a bearish shark harmonic, which completed about a week ago. The trigger for the bearish break came on September 25 and it has moved lower since. The shark pattern targets a retracement of the pattern by 61.8%. That is, to 102.56, which is just below the 50- and 100-day SMA’s. There may be a good area between 102.56 and 103.60 to start a position for the long term in the stock. As it falls, the RSI is at the edge of the bullish zone. If that area fails, the pattern calls for a full retracement to the 98.80 area at the 200-day SMA.
Keep in mind that some of the pain from the 102.50 to 98.80 area can also be buffeted by the 2.80% dividend yield. Perhaps a half position at 102.5 and then add October 102/100 1×2 Put Spreads for a credit to both protect the position and possibly add to it at 98.
The Upside?
The Point and Figure Price Objective is to at least 125.