VRX Stock: Staging an Advance
Putting hard-earned dollars into an investment like Valeant Pharmaceuticals Intl Inc (NYSE:VRX) stock isn’t easy, especially since the stock has been nothing more than a weapon of wealth destruction. In August 2015, VRX stock traded as high as $263.81, and it took less than two years for Valeant stock to a hit a low of $8.31 as recently as April 2017. This represents a 98.6% loss from peak to trough, and is essentially a complete loss.
In recent days, Valeant shares have begun to run higher. This move has caught many off guard and I have reason to believe that this run towards higher prices has some legs to it. Higher prices can still be expected.
My newfound bullish beliefs surrounding Valeant shares were created by analyzing indications on the VRX price chart. This method of analysis has a name: technical analysis. It is based on the notion that historical price and volume data can be used to project the future path of a stock’s price. I have been studying this method of analysis for nearly two decades because I have found great success by applying it to my trading strategies. If this method sounds a bit preposterous, I suggest you to take a gander at my previous publications in order to gauge some of the accurate calls I have made.
Let me reiterate. I believe that a higher Valeant share price is a real possibility, and there are two indications that I am leaning on to support this view.
The following Valeant stock chart illustrates a long-term indicator that is on the verge of generating a bullish signal.
Chart courtesy of StockCharts.com
The focus on the VRX stock chart above is the moving average convergence/divergence (MACD) indicator located in the lower panel.
The MACD indicator is a trend-following momentum indicator. This indicator uses signal-line crossings to distinguish between bullish and bearish momentum. Depending on the signal that is generated, this indicator creates a headwind or a tailwind that can either help propel price higher or restrict any further progress.
For example, in September 2015, a bearish signal was generated, indicating that bearish momentum was in effect. This indicator created a headwind where the path of least resistance for Valeant stock was geared towards the downside. This indicator effectively suggested that lower prices were likely to prevail, and it did not disappoint; Valeant proceeded to fall from $177.09 to $8.31, losing 95.4%, after this indicator was generated. Following this indicator would have helped avoid a complete loss.
This bearish signal has been engaged for a little less than two years, and the signal lines have now completely converged. It is not a coincidence that VRX stock has begun to rally, because a bullish signal is now imminent in the months ahead. This bullish indication would serve to suggest that the bulls have finally overwhelmed the bears and bullish momentum is finally dominating. Such a signal would create a tailwind where the path of least resistance for Valeant’s share price will be geared towards higher prices.
The following Valeant stock chart illustrates a hurdle that price will need to surpass in order for this rally to really gain traction.
Chart courtesy of StockCharts.com
The focus on this Valeant price chart is the 200-day moving average. This moving average outlines a very significant level, and is being watched by many.
The 200-day moving average acts as the dividing line between healthy stocks trading in a bull market and unhealthy stocks trading in a bear market.
In September 2015, VRX stock broke below this moving average and began trading below it on a sustained basis. This price action served to suggest that the bull market that graced this investment in the past had finally concluded. Ever since Valeant shares traded below this moving average, the trend towards lower prices has been relentless. Using this indication to step aside would have saved a lot of money and a lot of heartache.
VRX share have been trading below the 200-day moving average for nearly two years and there has yet to be a test of this moving average. At minimum, I believe that this rally in Valeant stock will test this moving average from below.
If Valeant can break above the 200-day moving average, it would serve to suggest that this investment is bullish once again. This indication would also coincide with a bullish MACD cross; it was not a coincidence that both these indications turned bearish at the same time and a massive sell-off followed. So the same can be said that when both indications turn bullish, a significant rally to the upside can be expected. Perhaps Valeant can mend some of the broken hearts it created.
Bottom Line on Valeant Stock
A rally in Valeant stock has begun, and it has the potential to generate a number of bullish signals that would suggest that this rally towards higher prices has legs. This potentially bullish view on VRX stock was generated using indications on the company’s price charts, and as a result, I will change my view in accordance to the indications that are generated.