Trading in Johnson & Johnson (NYSE:JNJ) is quiet Wednesday. The shares dropped by almost 6% yesterday after the company reported its earnings.
As you can see on the chart, the $246 level is important for Johnson & Johnson. There is support at this level. This is why Johnson & Johnson is the Stock of the Day.
In March, the shares were in an uptrend. When they reached the $246 level, they hit resistance. A reversal followed and a downtrend formed.
When this happened, people who sold at the resistance were glad that they did. They thought they made a good decision.
But when the resistance broke in June, and the price moved higher, they changed their minds. They decided that selling was a mistake.
Some of them also decided that if they could eventually buy their shares back at the same price they were sold for, they would. When Johnson and Johnson dropped back to $246 in July, they placed buy orders. The large quantity of these orders created support.
When the stock rallied off this support, a number of the people who sold at it came to regret doing so. They decided to buy their shares back at their selling price if they eventually could.
Now that J&J has dropped back to $246, they are placing buy orders. At least for now, these orders have created support at the level again.
Stocks can rally after they reach support. This happens when some of the buyers who created the support become anxious and impatient.
They know the sellers will go to whoever is willing to pay the highest price. They don’t want to miss the trade, so they increase their bid prices.
Other impatient buyers see this and do the same. It can result in a snowball effect that forces the shares into an uptrend.
There is a chance Johnson & Johnson has found a bottom. There is also a chance it rallies from here.
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