Technical Analysis: This Is Why Valeant Stock Is a Top Pick for 2018

 Valeant Stock
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VRX Stock: Saying Farewell to a Previous Level of Resistance

The markets are engulfed with selling pressure and the low volatile environment that characterized the price action for all of last year is clearly no longer in effect. I am the camp that continues to believe that the sell-off at this moment is nothing more than a much-needed correction and that higher prices will eventually prevail.

Given this premise about the market indices, it translates into an opportunity to acquire many sought-after names at a potential discount from where they stood earlier this year. One of these sought-after names is Valeant Pharmaceuticals Intl Inc (NYSE:VRX) stock. The reason why I believe it is sought-after is that Valeant stock has just entered a new bull market and, therefore, it has just begun its bullish move toward higher VRX stock prices.

The recent price weakness in Valeant shares has been constructive in nature and it is currently testing the price point responsible for confirming that a new bull market was in development.

In actuality, I have been anticipating this event since December 14, 2017, where I outlined that I expected such a scenario to play out.

This very influential and significant price point, which is currently being tested, is highlighted on the following Valeant price chart.

Valeant price chart

Chart courtesy of StockCharts.com

This price point, which currently defines a significant level of price support, is what I always referred to as “the line in the sand.” I stipulated in a number of publications that in order for Valeant stock to confirm the notion that a bull market is in development, VRX needed to break above this significant level of price resistance. This event occurred on December 8, 2017, and I have been preaching that a bull market has been in development ever since.

The last time I covered Valeant stock on December 14, 2017, I outlined that I expected this previous level of resistance to get tested from above. After VRX stock reached a peak of $24.42 on January 5, 2018, the stock price been correcting, and for the last week, amid this market turmoil, this previous level of resistance has been put to a test.

Testing a previous level of resistance from above is called a backtest and this price action serves to reinforce that the break above resistance was legitimate, while simultaneously establishing it as a new level of price support.

If the premise that a bull market in Valeant stock is in development holds true, then I expect the stock price to bounce off this price point and for higher prices to prevail.

In order to confirm that the backtest is complete and that higher prices are likely, I will be watching a very influential momentum indicator, which is highlighted on the following stock chart.

Valeant stock chart

Chart courtesy of StockCharts.com

The momentum indicator highlighted on the VRX stock chart is the moving average convergence/divergence (MACD) indicator.

MACD is a trend-following momentum indicator that uses the crossing of a signal line in order to determine whether bullish or bearish momentum is influencing the trading action in a stock. This is significant and pertinent information because a stock cannot make a sustained move in either direction without the applicable momentum supporting it.

For example, on November 7, 2017, a bullish cross was generated and bullish momentum propelled VRX stock toward higher prices. It sustained a gain of 61.77% in as little as 24 trading days.

On December 28, 2017, a bearish cross was generated. A week later, the Valeant stock price peaked at $24.43, and bearish momentum sustained a decline to $17.00, where Valeant currently stands, backtesting a previous level of resistance.

The MACD indicator is currently converging, and if VRX stock can maintain this newly established level of price support, a bullish MACD cross will likely be generated in the days ahead, implying that higher prices are on the horizon because that will be the path of least resistance.

I am also convinced that the current market sell-off has run its course and, therefore, it is due for a bounce where higher stock prices will prevail. This dynamic increases the odds that my bullish view on Valeant plays out as expected, and it is why VRX stock is one of my top picks for 2018.

Analyst Take

Valeant stock is testing an important level of price support and its bullish posting lays in the limelight. I have the inclination to believe that VRX stock will find its footing on this level of price support and that higher stock prices could be ahead. My inclination for higher prices is based on the price action that preceded this moment, which is suggesting that a new bull market has just begun.