How to Spot Opportunity When All Seemed Lost in Johnson & Johnson

One of my favorite ways to make money is by waiting on excessive fear.

Look at Johnson & Johnson (JNJ) for example.

In October 2019, the stock began to plunge out of the sky. Investors feared the worst. All after the company recalled a single lot of Johnson’s Baby Powder. In fact, according to the company’s press release:

“Out of an abundance of caution, Johnson & Johnson Consumer Inc. (JJCI) announced that it is initiating a voluntary recall in the United States of a single lot of its Johnson's Baby Powder in response to a U.S. Food and Drug Administration (FDA) test indicating the presence of sub-trace levels of chrysotile asbestos contamination (no greater than 0.00002%) in samples from a single bottle purchased from an online retailer.”

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They were taking precautionary steps.

At the same time, the company could not prove three things. One, if cross-contamination of the sample caused a false positive. It also cannot confirm if the sample was taken from a bottle with an intact seal, or if the sample was prepared in a controlled environment. Nor can it tell it the tested product was authentic or counterfeit.

Of course, analysts are warning investors to stay away from the stock. However, technical analysis is saying the bottom have been in place days after the bombshell news. In fact, once our set of technical indicators were caught in oversold territory, the stock began to bounce.

Technical Analysis Called the Pivot

Nine times out of 10, when JNJ fall to its lower Bollinger Band (2,20), we typically see a pivot higher. That’s also supported by Williams’ %R, which was under its 80-line in October 2019.

If you look at the last two years of activity, we can clearly see that each time Williams’ was under its 80-line, with the stock at its lower Band, we see a bounce.

In fact, it happened nearly 15 times after any bad news was released.

It’s just something to keep in mind if you’re looking for opportunities. 

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