VAR (Varian Medical Systems)

Varian Medical Systems is a system and equipment manufacturer in the oncology market. The stock has been very successful for years as the company grew earnings throughout the bear market and also through the more beneficial markets we've been dealing with the last few years.

The stock has begun to experience more volatility in the last year or so which looks to me like a churn in the shareholder base and quite possibly a broad top in the stock. Beginning in March of last year the stock sold off over 30% where it found support just above $40 but below bot the 50 and the 200 day average. Since then the stock has made a significant summer run back up to the $55 area. The last 4 months, the stock has hung around the 50 and 200 day average without deviating too far in either direction.

Last week after announcing earnings, the stock gapped down 10% on the strongest volume in over a year. This type of action is often followed by more selling so I took notice. I waited 2 days after the announcement and the stock was not able to begin a significant rally back from its plunge which makes be believe the institutional investors are not too excited about plowing money into this name even at its discounted state. So I shorted 5,000 shares (roughly a 3% position) in anticipation of more liquidation.

I believe the overall market will be more important than company specific news in this trade. The market has shown some distribution, and is overdue for some selling. I will watch the AD line (advance decline line) and volume patterns to guage the general market backdrop and anticipate working into more short positions if we see more distributive action.