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Story Behind Ramsay Health Care Limited’s (ASX: RHC) Stock Movement - A Technical Look

  • March 24, 2019 09:15 AM AEDT
  • Team Kalkine
Story Behind Ramsay Health Care Limited’s (ASX: RHC) Stock Movement - A Technical Look

Ramsay Health Care Limited (ASX: RHC) is a name well-known in the business of private hospitals. It owns about 235 hospitals, day surgery centres, nursing college etc. across five countries. In view of the mixed outlook and performance provided last year and other challenges in the sector, the stock of the group was once considered to be a beaten-down one.

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Particularly, the stock has been in a continuous downtrend from the past couple of years. The initiation of the downtrend started from September 2016. On 1st September 2016, the stock made a high of A$84.08, after following through a consistent rally from the past few months prior to September 2016. But unluckily this high marked the highest high the stock could reach, which consequently led to the end of the previous rally. From here on, the downtrend of the stock started which lasted for more than two years.

The stock followed a specific course of action while taking a correction for more than two years. As seen in the price chart below, the correction has taken the form of a falling or downward channel. The downward channel is a bearish chart pattern which indicates the downtrend of the security and the price stays within the channel throughout the downtrend. The upper trendline of the channel acts as resistance, and lower trendline acts as the support for the stock; hence the price bounces off between these two trendlines.

RHC Price, Volume and Volatility Chart (Source: Thomson Reuters)RHC Price, Volume and Volatility Chart (Source: Thomson Reuters)

The first signal of bottoming out the downtrend was seen from June 2018 to December 2018 wherein the stock almost changed its downward direction towards a more neutral and sideways direction. It is to be noted that a sideways trend is still different from a positive trend and as the stock was still in the downward channel, the positive trend was yet to be initiated. In a channel pattern after prolonged trading of price in that channel, it is expected that either of the two trendlines would be breached which would further dictate the future course of action. Generally, in a Downward channel pattern, the price is expected to breach its upper trendline (resistance) to mark the trend reversal. However, this is not a hard and fast rule and a breach below the lower trendline results in the acceleration of the downtrend.

On 28th February 2019, the stock breached above the resistance level (upper trendline) around A$63 and closed at A$64.78 for the first time since the downtrend started in 2016. This was the first bullish signal that the downtrend might have ended. Also on the day of breakout, we have witnessed a significant volume of 1.25 million (average for the last 20 days being 359.6k), which increases the credibility and reliability of the breakout. After the breakout the stock is more or less moving in a range but still trading above its downward channel.

In technical parlance, the longer time the price takes to form a pattern, the stronger the reversal or continuation gets. So looking at the two years of downward channel pattern (which took the price from A$83 odd levels to A$52.5 odd levels, this could just be the start of a new trend. As of 22nd March 2019, the stock was trading at A$64.86. Since listing, RHC stock has delivered returns of over 552%.


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