Stock Of The Day: Will Johnson & Johnson Take The Market Lower?

Shares of Johnson & Johnson JNJ are flat in Monday's trading. But they continue to test support. If this support breaks, it could be bearish for the entire market. This is why we have made it our Stock of the Day.

The S&P 500 Index consists of 11 sectors. At varying times, each sector can have more influence on the broader markets than others. Right now, health care is important.

Within these sectors, different stocks can have more influence on them than others at different times. That's the case now with the healthcare sector and JNJ.

As you can see on the chart, $143.50 has been support for Johnson & Johnson and it is now trading close to this level. If this support breaks, it could pull the healthcare sector lower. And this could pull the entire stock market down along with it.

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It isn't a coincidence that there is support at this level. It was support in April. Then it was support in May and June and now it is support again.

Support forming at prices that had previously been support is a common occurrence in the financial markets. It is a result of investor and trader psychology.

It is due to ‘seller's remorse'.

Some who sold their shares at the support level come to regret doing so if the price rallies soon after. Some of these remorseful sellers decide that if possible, they will buy their shares back at the same price they were sold at.

As a result, if and when the stock eventually reverses and drops back to the selling price, they place buy orders. If there is a sufficient quantity of these orders, it will cause support to form at the level again.

That's the case with the $143.50 level for Johnson & Johnson.

If a stock trades and stays below the support, traders say that the support has ‘broken'. This isn't merely symbolic. It illustrates an important market dynamic.

It means that the traders and investors who created the support with their buy orders have left the market. They have finished or canceled their orders.

This is bearish because those who wish to sell will have to push the stock lower to draw buyers into to market to get their orders executed. This could force it into a new downtrend.

It may be about to happen with Johnson & Johnson. This could bring the healthcare sector lower and put downward pressure on the entire stock market.

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