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Healthy prognosis for healthcare leaders

This article appeared in the November 2013 ASX Investor Update email newsletter. To subscribe to this newsletter please register with the MyASX section or visit the About MyASX page for past editions and more details.

What the share price charts say about CSL, Cochlear, Ramsay Health Care and Sonic Healthcare.

Photo of Regina Meani By Regina Meani, Your Technical Analyst

The healthcare sector of the Australian sharemarket has come into focus after some of the strongest performances by its four largest participants for some time. CSL, one of Australia's top 20 stocks, seems to have a clear path to follow as it bounds into new ground. Cochlear, a leader in its field, may see its share price remain volatile but with a positive tilt. And the charts for Ramsay and Sonic show some barriers to overcome.

Here is a summary of the four stocks. (Editor's note: Do not read the following analysis as stock recommendations. Do further research of your own, or consult a licensed financial adviser before acting on themes in this article).

1. CSL (CSL) $68.42

The CSL group has notched up decades of experience in the development and manufacture of vaccines and plasma protein biotherapies. The company has major facilities in Australia, Germany, Switzerland and the US, and employs more than 10,000 people in 27 countries.

Mountaineering

CSL candlestick chart - January 1989 to January 2013

Source: Regina Meani - Your Technical Analyst

The share price has experienced a broadly rising upward path from the mid-1990s. More recently it has been in the spotlight for being one of the best performers in the ASX top 20 stocks. The price has risen more than 160 per cent from its lows in 2011.

In reaching towards $70 in September, the price achieved a significant objective and paused to consolidate before resuming the uptrend. This situation may continue with a range between $64 and $72 before the price swings higher towards its next objective at $78-80 and then potentially towards $100. This scenario may be put at risk with a price drop below $64.

2. Cochlear (COH) $58.08

In 30 years of operation, Cochlear has established a reputation for innovation in implantable hearing devices, which has provided strong brand awareness among hearing specialists. The company has direct operations in more than 20 countries.

More of the same

Cochlear candlestick chart - January 2009 to January 2013

Source: Regina Meani - Your Technical Analyst

After a strong price rise from the mid-1990s to 2001, the stock entered a more turbulent phase that has produced a price performance roller-coaster. Notably, when the price peaked at $85 in early 2011 it quickly topped out and fell into rapid decline, almost halving in price in four months. The price recovered strongly and had regained almost all the lost ground by February this year. The action, however, proved unsustainable and the price pitched into another rapid decline to locate a pivotal turning point at $52.71 in June, amid market concerns over a product recall.

Although the volatile price movements are likely to continue, the stock's recent experience is showing some positive aspects. The price may continue to oscillate between $57.50 and $62 with broader parameters possible between $54 and $64 as it attempts another recovery phase. The risk would be a fall below $51.

3. Ramsay Health Care (RHC) $36.85

Ramsay Health Care is a global hospital group operating 120 hospitals and day surgery facilities across Australia, the United Kingdom, France, Indonesia and Malaysia. It caters for a broad range of healthcare needs, including psychiatric care and rehabilitation. The company employs 30,000 staff and treats more than one million patients a year.

Channel restrictions

Ramsay Health Care candlestick chart - January 1989 to January 2013

Source: Regina Meani - Your Technical Analyst

Ramsay has shown a price performance similar to CSL and has gained more than 130 per cent since its low in 2011. Taking a step further back to take in the powerful uptrend began in mid-2009; the price has climbed more than 300 per cent. After a tight upward path from 2009, the price broke through a speed resistance line in 2012 to reach towards a significant objective around $35. In reaction to the achievement and a decline in momentum, the price churned sideways above the $32 area support.

Initially it is difficult to determine whether these phases turn out to be consolidation or distribution, but the recent bounce from $34.62 and rally suggests there is a high likelihood that the next barrier zone in the $37-39 peak area can be taken out with a breakaway signalling another move higher for the stock to around $43-45. Until the barrier is overcome, the danger is a return to test the recent support around $34, with a risk of the price falling beneath $30, to seek the longer-term trend support.

4. Sonic Healthcare (SHL) $15.70

An international healthcare company, Sonic is based in Australia and structured as a decentralised federation of medical practices incorporating laboratory medicine/pathology, radiology services, medical centres, occupational and insurance medical services, clinical trials, and food and water testing. The company employs 26,000 people in Australia, New Zealand, the United Kingdom, Germany, Switzerland, Belgium, Ireland and the US.

A slower performance

Sonic Health Care candlestick chart - February 1998 to October 2011

Source: Regina Meani - Your Technical Analyst

After rising steeply through the 1990s, Sonic's share price slowed and its uptrend took on a lesser gradient. The price peaked around $17 in 2007 and fell to test the $10 support area in 2009. It enjoyed a strong recovery, returning to $15.60 by early 2010, but momentum failed to support the move and the price declined again to test the $10 level by the middle of that year.

At that stage, momentum had turned positive and combined with the support position the price headed on a new upswing, which continued to develop and the price again approached its peak zone. The price has stalled and may churn between $15.00 and $16.30 as it recoups momentum, with a break through $16.30 triggering a move into the $17-18 range and potentially much higher. A drop below $15 would signal that a deeper setback within the trend was required before the upward path resumes.

About the author

Regina Meani is a freelance consultant in market analysis and one of Australia's leading technical analysts. Her company, Your Technical Analyst, provides analysis to major institutional and individual investors and traders, as well as providing private tutoring and seminars for training in market psychology, CFDs and shares, and technical analysis.

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