Beaten Dow stock Johnson & Johnson is so bad it’s good, technician says

As the Dow inches closer toward correction territory, a top technician says one laggard in the blue-chip index is gearing up for a big comeback.

Health-care giant Johnson & Johnson has struggled to make gains this year, now down nearly 12 percent since January. However, Carter Worth, head of technical analysis at Cornerstone Macro, says there’s something in the charts indicating a rebound ahead.

Shares of Johnson & Johnson are up 43 percent in the past five years, compared with a gain of nearly 61 percent for the broader S&P 500 in the same time period. Despite the two historically trading in tandem, Worth believes the recent divergence could be setting Johnson & Johnson up as a catch-up opportunity.

“We’ve seen just over [the] past sort of six months basically the market continuing higher than Johnson & Johnson,” Worth explained Friday on CNBC’s “Options Action.” So we’ve got a performance spread that I think has reached a maximum.”

Furthermore, Worth noted that historically when the spread between Johnson & Johnson and the S&P 500 breaches 15 percent in a six-month period, shares of the Dow stock have rallied an average of 3 percent in the following three months and more than 9 percent in the following nine months.

Additionally, Worth alluded to the recent resurgence in the broader consumer staples. Despite being one of the worst-performing sectors this year, the group has jumped nearly 4 percent in the past month.

“[Johnson & Johnson] is trading almost lockstep with beaten-down consumer staples and we know consumer staples have started to come to life,” he explained. “I think that’s exactly what’s going to happen to [them].” Shares of Johnson & Johnson are up nearly 3 percent since the start of June.

Moreover, Worth noted that shares of the health-care giant recently broke above a key downtrend level around $121. Worth believes this move higher, as well as an emerging head-and-shoulders formation, are indicative of a bullish reversal ahead.

“This is exactly at prior lows where it got so bad that it’s good,” he explained.

Shares of Johnson & Johnson were trading lower on Monday afternoon, around $122.40.

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