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Mead Johnson Nutrition Move Higher?

10/17/11 10:35:40 AM
by Donald W. Pendergast, Jr.

Shares of Mead Johnson Nutrition appear to be in position for a possible move higher.

Security:   MJN
Position:   N/A

Mead Johnson Nutrition (MJN) is in the business of manufacturing and distribution of infant formulas, vitamins, and related products, and right now, the stock is in the middle of a seven-month-old rally that got going in March 2011, one that has seen the stock rise from a low of $55.12 to as high as $76.91 on September 16, 2011. Right now, it's only off a few dollars from that recent high and has just fired a new Rahul Mohindar oscillator (RMO) swing buy signal. Here's a closer look at this slow but steady climber.

FIGURE 1: MJN, DAILY. Some stocks move fast, others plod along, but regardless of the type of stocks you like to trade, the use of trendlines and long-term money flow should be two of your essential tools. They work very well in any time frame and in all liquid markets, especially in conjunction with a winning trading system.
Graphic provided by: MetaStock.
Graphic provided by: RMO indicators and tools from MetaStock 11.
 
In Figure 1, two items stand right out as you gaze at the chart:

1. The dominant long-term uptrend line on MJN's daily chart, despite having been modestly violated in the late September selloff, is still intact and is no doubt a major item of interest for committed shareholders.
2. The stock's long-term Chaikin money flow (CMF)(100) is exceptionally strong and puts the stock in a good position from which to run higher. In other words, there's still plenty of gas left in the tank to fuel a further rally in the stock for the time being. Add to this the fresh RMO swing buy signal and you've got a pretty appealing setup for a trader or investor willing to commit some risk capital to the financial markets.


Trade management here could be as simple as placing a buy-stop (entering on a stop order is the preferred way of initiating RMO swing signals, long or short) at, say, $74.58 and if filled, start running a two- to three-bar trailing stop of the daily lows, a stop that will eventually take you out of the trade on a daily close below it.

While it's tempting to want to pick profit targets right now because of all of the volatility and short-term reversals seen since August, it remains that the range-bound broad markets are going to break out (higher or lower) and we are getting closer to that point day by day.

Given the current technical state of the markets, the odds would seem to favor a break to the upside. This would also agree with the seasonal tendency of the big three (.SPX, .NDX, and .RUT) to rally strongly into year-end (and sometimes beyond). For now, if you're going long any stock at all, use modest position sizing (say, 1% risk to your account) and wait for a confirmed breakout by all three indexes before increasing your risk exposure. As always, in the markets as in life, your best offense is a good defense.



Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address: lineartradingsys@gmail.com

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