VRX Stock Is Still a 2018 Top Pick
We are almost at the midpoint of 2018, and the first half of the year is better left forgotten. For starters, the markets were weak. And if that weren’t enough, they were plagued with elevated levels of volatility, which resulted in wild market swings. The markets were enough to throw anyone into a tizzy.
So, let’s not dwell on the past. Things are looking up, going forward. For instance, the Russell 2000 small-cap index has just forged a new all-time high, and the Nasdaq Composite index has followed suit.
These are not characteristics of a market that is poised for further losses. Rather, I believe that the latter half of this year is poised for further gains.
I am returning to focus on Valeant Pharmaceuticals Intl Inc (NYSE:VRX), which is one of my top picks for 2018. Like the markets, VRX stock did not fare too well in the first half of 2018, but things are looking up for the stock and I continue to believe that it will outperform.
For starters, a very influential momentum indicator which first suggested that Valeant stock has put in a bottom has remained in bullish alignment.
This indicator is highlighted on the following stock chart.
Chart courtesy of StockCharts.com
The influential indicator highlighted on this VRX stock chart is the moving average convergence/divergence (MACD).
MACD is a momentum indicator that uses the crossing of a signal line to distinguish whether bullish or bearish momentum is influencing the price action in a stock.
Bullish momentum creates a path of least resistance toward higher prices, while bearish momentum creates a path of least resistance toward lower prices. Momentum is very important because a stock cannot stage an advance or a decline without the applicable momentum supporting it.
In September 2015, a bearish MACD signal was generated, indicating that bearish momentum was influencing the price action in Valeant stock, creating a path of least resistance toward lower prices.
In the months that followed, VRX stock fell from $177.09 to $8.31, shedding 95.4% of its value while this indicator was in bearish alignment.
In May 2017, a bullish MACD signal was finally generated.
As a result, I had the inclination to believe that a bottom was being forged. My intuitions were indeed correct and, since that date, the price action has been characterized by a series of higher highs and higher lows. That is the quintessential characteristic of a bullish trend.
This bullish trend has been responsible for taking VRX stock from a low of $8.31 to where it currently stands, representing a very impressive 177.6% gain.
Shortly after the bullish MACD signal was generated, another indication was generated. It too continues to support the notion that higher prices are in development.
This indication is highlighted on the following Valeant stock chart.
Chart courtesy of StockCharts.com
The indication highlighted on this chart is a golden cross.
This golden cross was created in July 2017, when the faster 50-day moving average crossed above the slower 200-day moving average. A golden cross implies that a bull market is in development.
When this indication was finally generated in July, it was the first time since October 2015 that these moving averages were in bullish alignment.
The implications suggested by this indicator were magnified in November 2017 when a bearish death cross was averted.
Averted signals are very powerful indications, and they are never to be dismissed. It takes an immense amount of strength to prevent a bearish signal from being generated. This event suggests that the stock is inherently strong, which favors much higher prices.
This was not the first time that a bearish signal was averted. In May 2018, to my delight, a second death cross was averted, which has now left little doubt that VRX stock is primed for further gains and that the second half of 2018 is poised to be a good one.
Valeant stock continues to be a top pick for 2018 because a number of indications continue to suggest that the stock is primed for higher prices.
As long as these indications remain in bullish alignment, I can only assume that the bull market for VRX stock that began in April 2017 is still in development.