Consider start scaling in a short position in MDT right here at $36.20. MDT had passed all of our screens for a short sale, but we had been waiting for a trigger that the market pays attention to before entering the trade. Patience in entering short sales is especially important when the overall tape is ripping.
Today STJ forecast significantly lower revenues and confirmed our earlier checks that hospitals have been reducing inventory of the medical devices they carry. Now we have the trigger and will add to our short position on spikes up.
Various health reform bills have provisions of additional taxes on medical devices. Careful attention needs to be paid to the movement of this issue in the congress as this may cause considerable volatility. Those concerned with lower risk may consider tight stops and renter the positions on spikes up.
Those interested in hedging may consider a pair trade by going long on STJ. STJ has already fallen quite a bit and periodically takeover rumors run the stock up