RehabCare Group, Inc. develops, markets and manages programs for the delivery of comprehensive medical rehabilitation and therapy services in acute-care hospitals,skilled nursing units and outpatient facilities. For the 9 months ended 9/30/00, revenues rose 48% to $329.5M. Net income rose 51% to $17.2M. Results reflect increases in the staffing and contract therapy business. Earnings also benefitted from an improved gross margin.

December, 24 2000

Rehabcare (RHB) is one of the largest contract managers of hospital-based rehabilitation services in the United States. The services it provides include hospital-based acute rehabilitation, skilled nursing and outpatient programs as well as contract therapy services to nursing homes and medical staffing services. Business has been going well for the company, but even more exciting is the breakout formation on RHB’s chart. Friday’s advance broke into new territory and set a new all time high ($47.56), which is the reason why we’re picking up RHB as a momentum play. A closer look at the chart shows that the stock has a tendency to advance sharply higher when shares break into new highs. Furthermore, we feel that continued weakness across the broader market could send more money into defensive sectors, like healthcare. With that said, we believe that RHB could be on route to test the $50 mark. To reach this level, the stock will likely need the strength of good buying (125,000 shares or better) to fuel a rally. Should this occur, we would look for a tougher challenge to come at the $55 mark. As for support, RHB should encounter a good initial base at $46, which is formed by two intermediate highs. Just lower, the recent high near $45 should provide a good secondary base for the stock. Look for entries when mid-day volume of 50,000 shares can accompany a bounce from either of these support levels. We’ll set stops at $42 to protect our backside. For this type of momentum play, we’ll let support and resistance determine our entry and exit points.

Picked on December 24th @ $46.75
Change since picked 0.00
Stop Loss @ $42.00

January 2, 2001

RHB has done very well recently, but it looks like many stocks in the healthcare sector could be on the verge of a near-term reversal. Today’s sharp drop through two intermediate highs could be a good indication of reversal. Protecting us against today’s dramatic fall was our stop of $47.

Picked on December 24th @ $46.75
Profit/Loss = +0.25 (+ 0%) (Stopped Tuesday @$47.00)
Best Profit = +5.75 (+10%)

December 31, 2000

RHB’s strengths as an outsourcing company, along with the proven success of its operating strategy have been instrumental in the company’s triple digit stock return this year. Moreover, the company’s relatively low P/E ratio of 37.52, compared to the industry average of 52.77 could provide the stock with additional room to grow next year. As for our play, shares finished off the week with a 1.25-point run coming off support at $50. Good volume of 150,500 shares managed to fuel an intraday rally to a new all time high of $52.50, before closing at $51.38. The S&P Health Care Index (HCX.X) formed a similar pattern on the day, advancing to a new intraday all time high of 954.20, before late-day selling pushed the sector down. Because of RHB’s close correlation to the HCX.X, we feel that it’s important to reference this index, prior to opening positions. With that said, we’ll look for initial resistance at $52.50 to be followed by a more difficult test at the $55 mark. When good volume of 150,000 shares or better accompanies the stock through these levels, then look for potential lower risk entry points. As for support, continue to look for good support at $50, braced by the 5-dma of $49.88. Sharp bounces off this level will provide us with intraday buying opportunities. Look for secondary support at the intermediate high of $47.56 to come ahead of our stop at $47. Remember to look for strength in the HCX.X to confirm your buys/sells.

Picked on December 24th @ $46.75
Change since picked +4.63
Stop Loss @ $47.00