JNJ stock did not start the year in the best way possible. The share price fell from an all-time high of $148.32 on January 17th to as low as $118.62 on May 29th, erasing 20% of the company’s market capitalization. Such declines come to remind us that even the best of blue chip stocks do not always rise. On the other hand, price drops often provide a great buying opportunity. Is JNJ stock’s plunge a chance to buy the dip or the start of a bigger crash? The chart below looks encouraging.
The hourly chart of Johnson & Johnson allows us to put the recent plunge into Elliott Wave perspective. It looks like JNJ stock has drawn a textbook A-B-C simple zigzag correction with an ending diagonal in the position of wave C. It is also interesting to notice that wave B is a smaller simple zigzag, labeled (a)-(b)-(c), where wave (b) is a triangle.
According to the theory, once a correction is over, the larger trend resumes. In JNJ stock’s case, the larger trend is clearly to the upside, so it makes sense to expect more strength from now on towards a new all-time high near $150 per share. The proper way to take advantage of the anticipated recovery is to wait for a decisive breach of the upper line of the ending diagonal and then put a stop-loss order right below the bottom of wave 5 of C at $118.60. As long as this level holds, the positive outlook remains valid. Given that JNJ stock has already slightly breached the 2-4 line of the diagonal, the situation currently provides an excellent risk/reward ratio of 5.6. So to answer the question from the first paragraph, it definitely looks more like a buy-the-dip opportunity than the beginning of a bear market. The bulls are still alive and kicking.
Did you like this analysis? Learn to do it yourself with our Elliott Wave Video Course!