In 2012 this stock looked like the bull was over at about $72. It did drop a little from there but almost immediately started its trek up once again. Today, it looks pretty ripe again.

I have never fully understood why a bull market sequence should consist of 5 waves up, other than noticing that this is often the case. Even then the actual counting of the waves is more an art than a science. Often it is really not possible to do in real time with a high degree of certainty. Also the constant mention of alternatives is, in my opinion, not always helpful. With those caveats I think JNJ may have peaked.

The single most important attribute of EW is that it must look good. And yes that is mostly in the eye of the beholder and why you do not listen to every Tom,Dick and Harry who pretend to know how it works. Here, fortunately, there are many supporting factors. The channels work relatively well. Wave 3 is still the longest, at least under one count which includes a triangle for wave 4, but barely. This is normal. There are a number of variations that would fit this chart but however you slice it, it does look complete.

Assuming the above is correct than this stock should drop 62%, to the 4th wave of previous degree, the triangle if there is one etc.etc., roughly to $60 which is cutting the value in half. If this could happen to JNJ,  a defensive stock and a pillar of most investment strategies, what is in store for the market as a whole?

Below is one variation using Google Finance which covers a longer period. Here we introduce the possibility of a “running flat”, that is one that is skewed slightly upwards. The triangle could be part of that, i.e. wave c. So the whole thing could be 8 to 9 years long.

See also previous blogs;

As expected JNJ has started to break down. Two counts are possible, one with a triangle in the middle and the other with a straightforward (running) flat. Both roads lead to Rome and it is purely academic which is the correct one. If one uses one’s imagination a 5th wave could even be argued with identical consequences. The double top is icing on the cake. A sell.

As with CL it is possible to count the EW sequence for JNJ with a series of 4-5’s. The end result is still equally bearish;

This is what we had, see  July 28th blog. Here is the other possibility;

Instead of a single multi year “wedge” 5th wave, two 4-5’s can be inserted assuming that a similar series of 1-2’s occurred back in the eighties. Both counts call for substantially lower levels soon.

About 3 years ago when the stock hit $65/66 we suspected that this was a sell. Today after a peak of $69.70 it is trading at about $69. That is a gain of about a single dollar a year, for 3 years and that is only if you look at the extremes as on average the stock traded at around $62 over that time. In earlier blogs we have singled this stock out for its absolute text book , classic, EW pattern. Just to be superfluous here it is again, straight out of the book;

Actually we would go a little further, the textbook sample does not show alternation within the 5th wave wedge, whereas the real sample has a real clear triangle for a 4th wave and a zig-zag for wave 2. The nice thing about the wedge is that it has to be a 5th wave and ergo the top has to be the 2008 top at about $72. From there you basically have to go down to the 4th wave of previous degree and do so in an a-b-c pattern. We have done neither, but we will. This stock has now peaked above $65 and below $70 a total of 15 times. It is about time for something big to happen and it is not going to be up.