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SUPPORT & RESISTANCE


Is Hillenbrand Industries A Compelling Defensive Play?

11/28/07 03:31:58 PM
by Matt Blackman

This stock has a history of doing well when the market cops a bad attitude.

Security:   HB
Position:   Accumulate

"Buy when it snows and sell when it goes," a saying made famous by Don Vialoux, technician and host of TimingtheMarkets.com, has proven uncannily accurate. Generally speaking, November, December, and January have been the best three months to be in the market, and Vialoux has the data to prove it.

But this time around, markets have languished, and while it may be too early to say whether the challenging headwinds are due to an approaching bear market storm, one thing is clear: Greater caution is advised. But here is an idea that should appeal to even the most risk-averse traders and investors.


Figure 1 Weekly chart of Hillenbrand Industries (HB) showing trendline support at $51 and a SqueezeTrigger or average price at which short sellers sold (went short) the stock at $52.90. The Healthcare (products) industry index has also been in a long-term uptrend plus earnings per share (EPS) remain strong and earnings growth (GRT) is compelling. Each time it has dropped into negative territory has been a good time to buy and the stock has performed reasonably well in previous challenging market environments. Chart by www.VectorVest.com SqueezeTrigger by www.Buyins.net
Graphic provided by: www.VectorVest.com.
 
In Figure 1, the weekly chart of Hillenbrand Industries (HB) shows trendline support at $51 and a SqueezeTrigger or average price at which short-sellers sold (went short) the stock at $52.90. The health-care (products) industry index has also been in a long-term uptrend, plus earnings per share (EPS) remain strong and earnings growth (GRT) is compelling. Each time it has dropped into negative territory has been a good time to buy, and the stock has performed reasonably well in previous challenging market environments.

Hillenbrand Industries (HB) manufactures and supplies medical technologies and related services for the health-care industry around the world. Even if we are getting closer to recession, which many believe to be the case, it should do well as the headwinds on Wall Street gain momentum.

Here are a few points in its favor:

1. HB and the health-care industry index are in uptrends at or near trendline support.
2. The fundamentals remain strong and each time earnings growth has turned negative, it has been a good time to buy the stock (see Figure 1).
3. Not only does the stock sit just above trendline support, the stock is also very close to its SqueezeTrigger or the average price at which the short-sellers sold (went short) at $52.90. As of the latest data, there were more than one million (1.8% of the float) shares sold short. This means that the higher above this price that the stock rises, the greater the short-seller's motivation to buy those shares back to limit losses, adding even more buying power. Stocks in this situation have been known to experience strong short-squeeze rallies.
4. There is strong price-volume support at $51.
5. As we see from Figure 1, HB fared quite well during the last bear market, between June 2000 and May 2002. While the rest of the market struggled, HB shares more than doubled in price.
6. With an aging population, health care is a growth industry.


No matter how good a stock candidate looks, it is imperative to have an exit strategy. If the stock decisively breaks $51, which is both trendline and price-volume support, get out and wait for a new level of support to form before reentering.

Links:

The SqueezeTrigger Explained
http://www.buyins.net/squeezetrigger.pdf

Don Vialoux's seasonal report
http://dvtechtalk.com/specialreports/specialreport5.htm

Recession Risks Rising
http://tradesystemguru.com/content/view/113/61/#Recession



Matt Blackman

Matt Blackman is a full-time technical and financial writer and trader. He produces corporate and financial newsletters, and assists clients in getting published in the mainstream media. He is the host of TradeSystemGuru.com. Matt has earned the Chartered Market Technician (CMT) designation. Find out what stocks and futures Matt is watching on Twitter at www.twitter.com/RatioTrade

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