Let’s apply some technicals to fundamentals on Johnson Controls (JCI) (April 09, 2014)

by DAN Discussed in this article: Johnson Controls Inc. ( $JCI )

I want to look at Johnson Controls ( NYSE:JCI ) here; this was one of Jim Cramer’s “Action Alert” stocks and I just wanted to analyze it technically. By the way, “Action Alert” is a pretty good service, particularly when you apply Dan’s technical analysis to it. So you buy stocks of really good companies, and you buy them at the right price, if you know technical analysis at all you see this pattern, but let’s zoom out first. You see the way this stock has trended, it’s nice to get in on the trend when it first starts. Okay, we need a flux capacitor to do that because we can’t go back to 2012 and trade.

But what we can do is, we can look at this current pattern, it’s a symmetrical triangle; here’s how these things work, lower highs, higher lows it’s a symmetrical triangle. Ultimately this will form an apex way out here. You don’t want to see the price go clear out to the apex because if it does more often than not it just trickles out; so instead we want to see the breakout usually before the last third of the triangle is over. If we just draw a line here, here’s the apex, so we’ll say this is like one-third here, I’d say this is about two-thirds here, so this puppy really needs to break out sometime pretty soon in order to give us a continuation, which is typically what these symmetrical triangles are seen as; they’re viewed as continuations of whatever the prevailing trend was. Here, the prevailing trend is up, lower left upper right, so we’re expecting this kind of breakout.

What I think you can do is use the 200-day moving average, you can look over in the left box, the current reading for the 200-day moving average is $45.12, use 45.00. This has traded above the 200-day moving average all the way along; so buy the stock right now, 47.51, take a small position, keep your stop at about 44.50. Now I get the fact that back here the low is 43.85. Well, we can keep doing that; we can keep walking that all the way down wherever we want to go. I think the key moving average is the 200-day moving average; I think that’s ultimately where buyers would live, and that is again at 45.12. So you keep a stop at 44.00, let’s say 44.90. You keep a stop at 44.90, you’ve got a reasonable risk on this, because if the stock falls down that low then the symmetrical triangle is suspect; you want to get out of that trade, you can always get back in, but you want to be out of it if your assumption was that this support was going to hold, it didn’t; okay, well welcome to trading, sometimes stuff happens.

So you buy some now, and then if the stock starts breaking out of that triangle, that’s when you buy more. It’s not like you’re buying initially on the breakout, because then if the breakout fails that’s known in trading parlance as a bummer; so instead you take some now, take some on the breakout, and then you’re good to go when this uptrend reasserts itself. Look, frankly nobody that I know of anyway, is better at assessing the fundamentals of the company, Cramer’s always got some great ideas. Now sometimes the price action doesn’t really help out, we know this, Jim knows this as well, but he’s got good ideas as far as the fundamentals of the company. So when you look at that kind of fundamental analysis, and it’s pretty rigorous, and then you also look at a price pattern here that’s bullish, that’s a stock that you want to really pay close attention to.

Free Chart