VRX Stock: Potential Bottom
Valeant Pharmaceuticals Intl Inc (NYSE:VRX) stock is making headlines once again, and investors are trying to stay on top of these new developments. The newswire is causing some serious volatility in VRX stock and on November 1, 2016, Valeant stock surged higher on the news of a potential sale of some non-core assets.
The previous day was the complete opposite, as VRX stock collapsed on the news that Valeant’s former CEO and CFO were being brought up on criminal charges. I have little doubt that such large swings are due to momentum traders heavily piling on these news headlines.
As a technical analyst who uses price charts as the basis of his investment analysis, the type of price action that I just witnessed can send me for a loop. Sometimes I find it better to just sit back and see where the prices land. In this case, that means waiting until the week is over to finally assess the magnitude of the news that was disseminated. When it comes to stocks, Friday is always the most important day of the week, and the closing level is the most significant.
The volatility and surge in the VRX stock price may have created a trend reversal. If this is the case, a bigger-picture bottom could be in the making.
The following Valeant stock chart illustrates the potential trend reversal.
Chart courtesy of StockCharts.com
Valeant stock began to make some headway this summer, but that rally ended in late August, and a descending channel quickly developed. This channel represents support and resistance, and it illustrates how orderly the price decline in VRX stock was as it drifted lower. These trends will continue until the price gathers enough strength to break free.
The news surrounding the criminal charges of the former CEO and CFO caused Valeant stock to plunge below the support level defined by the channel, while creating a new 52-week low in the process. The following day, positive news regarding the sale of assets sent the stock surging. This whipsaw behavior in the share price has potentially created a trend reversal, as the break below the channel was quickly averted the next day.
In order for this to be a true trend reversal, VRX stock needs to close the week above the descending channel. This would be a triumphant win for the bulls. This price action is very significant because it has more meaning than just a simple trend reversal. A possible long-term bottom may have been forged.
The following Valeant stock chart illustrates the possibility that a long-term bottom may be forming.
Chart courtesy of StockCharts.com
The price action on the VRX stock chart has the potential to put in a trend reversal pattern that would mark the end of this bear market. The pattern that may develop is known as a double bottom. A double bottom is a reversal pattern that appears at the end of a trend. It is marked by two consecutive bottoms, separated by a peak in between. The pattern is completed, and a trend reversal is confirmed when shares close above the peak that separates the two bottoms.
In order to confirm this reversal pattern, VRX stock would need to close above $33.00 on a weekly basis. Such an event would mark the exact bottom and would also project the next price objective of $45.00. But, until this event is confirmed, the repercussions that follow a confirmation are only speculation.
The Bottom Line on Valeant Stock
I am waiting to see how Valeant stock closes out the week. A close above the channel would suggest that a trend reversal is in play, and that the peak that defines the double bottom will be tested. Until then, I can only watch and wait for the appropriate trading signals from the price of VRX stock.