Resmed has been one of the success stories of Australian medical technology, building a business on the creation of devices for the treatment and management of respiratory disorders, particularly relating to sleep disruption. As this week's chart, produced by Alan Clement, a member of the Australian Technical Analysts Association, shows, Resmed spent the 11 years from 2001 to 2012 consolidating in a rising wedge formation.
Within the rising wedge on the monthly chart, Resmed's share price swung widely between lows of $1.20 and highs of $3.25 as buyers and sellers tussled to have their views on the stock vindicated in the market. The rising nature of the formation shows buyers did have the upper hand over the period and buying pressure led to a breakout.
The breakout came in September 2012, when the price went through $3.75. The strength of the upward movement indicates traders with a negative view who would have been sitting in short positions at the $3.75 mark were forced to unwind their positions as the stock rose, pushing demand for stock, and so the price, higher.
So what is the upward target for Resmed now? Clement says we should project the height of the wedge pattern upward from the breakout point which comes out at the $5.65 level. Interestingly, that has proved a resistance level, with the monthly chart reaching there and falling back. On the daily chart, a high of $5.94 was reached on October 11. After such a strong climb some consolidation around current levels is to be expected. However, Resmed is now in a strong uptrend and any short-term weakness is likely to bring more buyers into the market. So Clement says the upward trajectory is likely to begin, ending the current consolidation period.
If the stock were to make a (highly unlikely) fall back down into the wedge pattern, that could signal either further consolidation or a weakness that could test the lower wedge boundary once again. If the market remains above the $4 level, the balance of power is likely to continue to favour the buyers.
On the fundamental side, Resmed is trading on a toppish-looking price earnings ratio of 22.73 times, compared to the general market's 16 times. Its market cohort, however, is trading around the same PE as Resmed. It has a dividend yield of 1.6 per cent compared to 3.7 per cent for comparable companies and shareholders have been returned 37.2 per cent in a year and 15.3 per cent over five years.
The company is listed in both Australia and New York.
This column is not investment advice. firstname.lastname@example.org. ataa.com.au