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.
“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.
“[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.
“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.