Midcap med stock maintains healthy bias

Healthcare stocks have had a good 2017, with the S&P 500 Health Care sector up around 19% as of yesterday, trailing only Information Technology shares. Not surprisingly, Health Care Technology has been the strongest industry within the sector.

Midcap medical devices and software manufacturer Varian Medical Systems (VAR) has more than done its part, having gained around 42% YTD when it closed at $109.53 yesterday. Even so, the stock’s gains since it poked its head above $107 in mid-July have been somewhat incremental: three successively higher swing highs in September, October, and November, the last one (on November 20) taking prices above $110 intraday.

Varian Medical Systems (VAR) 12/19/2016 – 11/28/17

Source: OptionsHouse

The last leg of VAR’s upswing followed a sharp sell-off after the company’s October 25 earnings release. Varian missed on both earnings and revenue, and the stock took an 8% hit the next day (trading down to $99)—but it managed a stunning intraday reversal to close down just 3%. After that VAR scratched its way back to new highs, culminating in back-to-back record closes on Monday and Yesterday. Bad news, what bad news?

The stock now has a short-term trading range (roughly between $110.20 and $107.60) near the level of its all-time high. The first decisive move out of that range could signal the stock’s near-term direction and ability to push to new highs.

Varian Medical Systems (VAR) 10/10/2017 – 11/28/17

Source: OptionsHouse

On a slightly longer-term basis, if a downside move does occur, the October 26 low could be the last line of defense for bulls. If traders decide they don’t want to keep the stock above its post-earnings sell-off point, it could derail the stock’s still prevailing uptrend.

But that’s still a way off. Right now, the ceiling appears closer than the floor.


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