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Chart of the Day / Why JNJ Stock is Plunging

Why JNJ Stock is Plunging

December 17, 2018

Johnson & Johnson (JNJ) plummeted in early December 2018, wiping out nearly $40 billion worth of value after a damaging Reuters report.

In fact, the stock fell more than 10, or $14 a share on a Reuters report that the drug and consumer products company new for decades that its baby talcum powder was contaminated with asbestos.

Reuters said an examination of company memos and other documents found the company was well aware of small amounts of the carcinogenic in the powder.

According to Market Watch:

“The documents showed that internally, executives, mine managers, scientists, doctors and lawyers were worried about the problem of its raw talc and finished powders testing positive for the substance. But they denied all claims until they were compelled to share thousands of pages of documents with lawyers, representing some 11,700 plaintiffs who claim the talc gave them cancer, including thousands of women with ovarian cancer, the report found.”

If it’s found that Johnson & Johnson did know and was responsible for potential cancer in users of the product, a $14 drop is the least of its concerns. In fact, legal issues could quickly mount. Plus, we’re likely to see the stock plummet far more than it did in December 2018.

However, it may have also been an overreaction to “fake news.”

According to Johnson & Johnson, the Reuters article is “one-sided and inflammatory.”

“Johnson & Johnson’s baby powder is safe and asbestos-free. Studies of more than 100,000 men and women show that talc does not cause cancer or asbestos-related disease. Thousands of independent tests by regulators and the world’s leading labs prove our baby powder has never contained asbestos. J&J attorneys provided Reuters with hundreds of documents and directly responded to dozens of questions in order to correct misinformation and falsehoods.”

As the storm clouds clear, and as the true facts of the story become more apparent, shares of Johnson & Johnson could very well become a “blood in the streets” opportunity.

Technically, the stock is plunging in a falling knife.  So, it’s better to wait for the fear to be fully baked in, rather than getting cut by the knife.  What we want to see is a clear bottom marked by oversold MACD, relative strength, and Williams’ %R prior to making a bullish move.

With the story still fresh, fear is disseminating quickly, forcing the stock lower.

Again, though, once the storm clouds clear, we’ll have a better idea of where a bottom may be.

Stay tuned for more on this quickly developing story.