Valeant Stock Needs to Clear One More Hurdle

VRX Stock
Credit:iStock.com/YiorgosGR

VRX Stock: One Piece Away from a Bull Market

A number of bullish events have transpired since my last update on Valeant Pharmaceuticals Intl Inc (NYSE:VRX) stock. In that May 17, 2017 update, titled “Valeant Stock Is Slowly Becoming Bullish Once Again,” I outlined a number of stock chart indicators that I was watching and would use to confirm that a new bull market in Valeant stock was in development.

I was watching these indicators because I had the inclination to believe that a bullish advance was underway. This inclination proved correct, because VRX stock appreciated by 14.18%.

This appreciation in the stock price caused the indications I was watching to swing into bullish alignment, suggesting that a bull market is now in development. As much as it pleases me to see these positive indications, there is still one more piece of the puzzle that is required for me to finally confirm that a new bull market is now in development.

Before I delve into the missing piece, let’s review the indicators that have now swung into bullish alignment.

The following Valeant stock chart illustrates a very influential long-term indicator that has just swung into bullish alignment.

Valeant stock chart

Chart courtesy of StockCharts.com

The influential indicator that is highlighted on this monthly VRX stock chart is the moving average convergence/divergence (MACD) indicator.

MACD is a momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum. Momentum is needed to stage a price advance or a price decline, and this influential indicator determines whether bullish or bearish momentum is influencing the stock price. This indicator has done an extremely efficient job in suggesting the predominant direction that a stock is trading in.

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Valeant Stock: 2017, The Year VRX Stock Turns It Around

In September 2015, a bearish MACD cross was generated, indicating that bearish momentum was influencing the predominant direction that Valeant shares were trading in. This indicator effectively suggested that the stock price was geared toward lower prices, and VRX stock proceeded to fall from $177.09 to $8.31, losing 95.4% while this indicator was in bearish alignment. This illustrates the significance that this indicator carries.

Now that a bullish cross was generated in May of this year, I can only assume that higher stock prices are likely to prevail, because bullish momentum is now influencing the stock price. This indicator, which correctly suggested that the stock price was set to decline, is now in bullish alignment, suggesting that the stock price is set to advance.

The following Valeant stock chart illustrates another indicator that has swung in bullish alignment.

VRX price chart

Chart courtesy of StockCharts.com

The influential indicator highlighted on this VRX stock chart is the 200-day moving average. The 200-day moving average acts as a dividing line that separates healthy advancing stocks from unhealthy, declining stocks. The distinction between these two polar opposites is determined by whether the investment is trading above or below this moving average.

In September 2015, Valeant stock broke below this moving average, indicating that it had become an unhealthy declining investment. The share price proceeded to fall precipitously in the months that followed and, for the next 21 months, the stock price languished under this moving average.

In June of this year, Valeant finally mustered enough strength to break above this moving average, and has maintained its stature above it. This serves to suggest that this investment is once again healthy and set to advance.

The cross above the 200-day moving average coincided with a bullish MACD cross, which served to reaffirm the suggested bullish implications. Under most circumstances, I would confidently say that a new bull market is now in development. The exception this time is that there is a level of price resistance that sits just overhead.

The following Valeant stock chart illustrates this level of price resistance.

VRX stock chart

Chart courtesy of StockCharts.com

The VRX stock chart illustrates a horizontal level of price resistance that is labeled “the line in the sand.” This is the level of price resistance that sits overhead that Valeant needs to overcome. Such a feat would confirm my suspicions that a new bull market is in development.

This significant level was penetrated to the downside in November 2016, after the company posted an earnings report that missed on both the top and bottom lines. In the days that followed, the stock price tried valiantly to regain its stature above $18.50, but that effort was quickly thwarted, and Valeant shares have been trading below it ever since.

If VRX stock can break above $18.50, I will have all the information I need to proclaim that Valeant is now in a new bull market, and that higher stock prices will prevail.

Bottom Line on Valeant Stock

A number of indications on the Valeant stock chart have swung into bullish alignment, suggesting that a bull market is in development. In order to confirm these suggestions, I would require that VRX stock closes above a significant level of price resistance at $18.50.