VRX Stock: Bears are in Control
As much as I would love to be bullish on Valeant Pharmaceuticals Intl Inc (TSE:VRX) stock, the price chart has served only to reinforce the bearish trend. Even with VRX stock down 90% from the highs, this company has failed to give me the required signals to, without a doubt, say that this bear market has finally concluded.
There have been some constructive developments, so I will outline some of the factors that will need to occur to swing my bias on Valeant stock to bullish.
My analysis is strictly based on using the price chart of Valeant stock to generate a trading bias. This method has served me well, in that it keeps my trading strategies strategic and systematic. My system is not perfect, and I have yet to come across any type of system that is foolproof. I find that the key to a successful strategy is to define my levels of risk, which include the price points where my bias no longer applies.
The following chart illustrates the major trend that is dominating the trading action in Valeant stock.
Chart courtesy of StockCharts.com
The downtrend that has developed is steep and it has effectively contained and simultaneously decimated the price of Valeant stock.
A downtrend is defined by lower highs that are confirmed by lower lows. This trend line is created by connecting the peaks on the VRX stock chart. This trend can be easily identified as the price moves from the upper left to the lower right. The bulls will need Valeant stock to close above this trend line for there to be any hope of a bullish outcome. As long as VRX stock is trading below this trend line, shares will continue to trade with a bearish bias.
Not all of the news is terrible, as there have been some constructive developments on the VRX stock chart, as illustrated below.
Chart courtesy of StockCharts.com
The pattern that had originally piqued my interest is the cup-and-handle formation (highlighted in purple) that developed over the summer. This is a bullish setup pattern and, aside from giving me the required direction that I seek, this pattern also provides a potential price target. This pattern was confirmed when VRX stock closed above the horizontal resistance level and, subsequently, this pattern was reaffirmed when the price retraced and backtested the horizontal level of resistance from above.
The price target of this pattern is obtained by taking the depth of the cup and projecting it above the horizontal resistance line. The target based on this pattern is $31.81, and that was easily attained in the days following the pattern confirmation. This pattern originally gave me hope that the downtrend line might be broken, but that has yet to develop.
VRX stock has now entered into a descending channel and, while that has contained price, the slopes of the support and resistance lines are both negative. Thus, as time persists, the price continues to fall. The share price will oscillate between these two lines for as long as the trend permits. A trend reversal will occur when Valeant stock finally gathers enough strength to break out of this channel.
A breakout of the channel will not be enough to completely change the picture to be bullish, but it will be a good start. I am looking for a move above $33.00 to confirm that the trend has indeed changed, as this will involve breaking the downtrend line and VRX stock will finally make a higher high.
It is possible that the lows generated in June will be tested. I would be looking for the lows to be tested on lower volume, setting up a possible double bottom. Regardless, the $33.00 price point would still need to be taken out for this pattern to be confirmed.
The Bottom Line on Valeant Stock
I am bearish on Valeant stock, but I am looking for reasons to be bullish after the stock has suffered a 90% decline. There have been some constructive developments on the price chart, but I would need VRX stock to close above $33.00 in order for my bias to change.