Why Cochlear shares are ready to bounce higher

Why Cochlear shares are ready to bounce higher

The health-care sector of the sharemarket is considered fairly defensive by investors.

However, that doesn’t mean it generates lower returns, as a trade-off for its defensiveness.  This year alone, the S&P/ASX 200 Health Care (Sector) index has gained more than 30 per cent. The broader market, as measured by the S&P/ASX 200, has gained less than 20 per cent.

Implant maker Cochlear's shares have bounced off support at $200 and a ready to push higher.

Implant maker Cochlear's shares have bounced off support at $200 and a ready to push higher.Credit:Edwina Pickles

With global growth slowing, investors are now flocking to companies which are not only defensive but have reliable rates of organic growth. One such stock is Cochlear.

The manufacturer of implants for the hearing impaired has global operations and is a market leader in its field. It continues to spend on research and development, recently launching products that can be used within MRI scans, as well as those which allow users to stream sound from their iPhone.


Cochlear's share price has been quite volatile during the past year. This has made it difficult for investors to determine its overall price direction.

However, the latest price action suggests that, barring a major external shock to the market, Cochlear shares are unlikely to head much lower from here. There are a couple of reasons for this.

Firstly, we need to look at the major turning points for the share price.

In February, the shares hit $200 but were unable to push beyond that. After sitting there for a few days, the price eventually fell away again. This was telling us that at the time there were too many investors willing to sell Cochlear at $200, compared to those willing to buy it at that price.

It was a positive sign that the shares eventually broke through $200 in the middle of the year.

However, what is more interesting was the recent dip in August. As soon as it dropped to be near $200, the share price rallied sharply. This is telling us that where $200 was a strong level of resistance earlier in the year, it is now a strong level of support. We have reached a stage where $200 is now considered a good price to buy Cochlear shares.

The other point to note is how the shares have held up since August. When they dipped to $200, they rallied nearly 10 per cent in the next three days. Since then, however, they have drifted back.

The timing of these moves is important when you analyse a share price chart.

The market has taken two months to try and push Cochlear back towards $200 but it has been unable to do so. Why? Because there continues to be good buying support at that level. This is why I cannot see much lower levels for Cochlear and why the recent dip is a good buying opportunity for investors looking to add Cochlear to their share portfolios.

Michael Gable is managing director of Fairmont Equities

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