That Heart Throb... Zoll Medical

12/28/06 01:19:28 PM

by Koos van der Merwe

Zoll Medical manufactures not drugs, but machines that save lives. Is that why the stock has skyrocketed?

Security: ZOLL
Position: Accumulate

Advancing resuscitation is the core of their existence. Their products and solutions encompass multiple facets of resuscitation and work as a system to help improve survival rates. Whereas companies like Pfizer develop drugs that could have serious side effects, effects that only rear their ugly heads years later, Zoll Medical's (ZOLL) machines and innovations can save lives with little if any side effects. Is this why the stock price has risen from a low of $20.07 on April 26, 2005, to its current high of $59.20?

FIGURE 1: ZOLL MEDICAL, DAILY. No possibly harmful drugs made here — only machines that save lives. Is that why the stock's shooting up?

Graphic provided by: AdvancedGET.

Figure 1 shows how the share price reached a high of $28.63 in August 2005 and only broke above this level in May 2006. The trendline pattern that formed is a broadening formation, usually a pattern of uncertainty, and after forming a cup & handle pattern, the price did break out — but upward and on a gap. The oscillator used — namely, a stochastic 5, 8, 3 — did give a buy signal in March 2006 at $24.61, but then took out the stock with a divergence sell signal in August 2006 when the price was $39.97, a very handsome profit.

Had you kept the share in your watchlist, you would have seen the cup & handle pattern developing and entered the market on the gap as it broke above the handle of $42.33, possibly one of the reasons for the gap.

From this point, the share price has risen to new highs but on falling volume, suggesting weakness. The oscillator is also at oversold levels, suggesting that indeed, the share price could fall to fill the gap. I would be a buyer if and when this happens.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.