Technical Analysis: This Is Where I Draw the Line on Valeant Stock

Valeant stock
Credit: iStock.com/royyimzy

VRX Stock: A Bull Market Begins with This Price Point

A lot of eyes, including my own, are watching the price action in Valeant Pharmaceuticals Intl Inc (NYSE: VRX) stock because after such a fall from grace, many (myself included) have been anticipating that perhaps the worst may be behind this battered investment. Perhaps there are better times ahead for VRX stock.

As an analyst that possesses both a fundamental and a technical degree, I could lay out the fundamental facts that possibly suggest and support why there are brighter horizons ahead for Valeant stock. Instead, I am choosing the technical route because I find that this method provides a strategic advantage.

This method is based on the notion that historical price and volume data can be used as a tool to forecast what the future may bring. With nearly two decades under my belt, I feel like I’m well-equipped to analyze VRX stock using technical analysis.

I have narrowed down the price point that I believe will confirm when VRX stock has finally put in a bottom. This price point was the focus of my August 4 report, “Valeant Stock Needs to Clear One More Hurdle.”

This price point is highlighted on the following stock chart.

VRX price chart

Chart courtesy of StockCharts.com

This Valeant stock chart highlights a significant level of horizontal price resistance that resides at $18.50. I labeled this level of resistance as “the line in the sand” because this is the level that I believe the stock needs to overcome in order to confirm that a bottom in this stock has finally been put in.

This level was first established as resistance when VRX stock fell below it in November 2016, following a disappointing earnings report. The stock price has been trading below it ever since.

There have been three attempts to move beyond this level of resistance and none has been successful. The good news is that resistance levels are not set in stone, so every time there is an attempt, the bulls are slowly chipping away at the ceiling that currently resides at $18.50.

I have the inclination to believe that Valeant stock might be able to break above this level of resistance on its next attempt because a key indication I am watching is suggesting that there is an inherent strength within this investment.

This key indication is highlighted on the following stock chart.

Valeant stock chart

Chart courtesy of StockCharts.com

The key indication highlighted on the Valeant stock chart is a golden cross and it suggests that a bull market is in development.

This indication was created in July when the faster 50-day moving average, highlighted in blue, crossed above the slower 200-day moving average, highlighted in red.

In November, there was an attempt to create a death cross, which is the opposite of a golden cross and implies that a bear market is in development. This attempt was averted when the stock price gapped higher following a better-than-expected earnings report.

Averted signals should never be dismissed because they are actually very powerful indications. The sheer fact that a bearish indication was averted is a testament to the inherent strength currently contained in this investment. This powerful signal is suggesting that higher prices are on the horizon.

This averted death cross increases the probability that the significant level of horizontal resistance, which resides at $18.50, will fall. Let me reiterate; I believe that such an event will confirm that the worst is finally behind VRX stock and that it can finally stage an advance towards higher prices because a new bull market is in development.

Analyst Take:

I am watching a very important level of resistance, which currently resides at $18.50. I have the inclination to believe that once Valeant stock closes above this price point, it will confirm that a bottom in VRX stock has finally been put in, and therefore, higher prices are likely to follow.