Wednesday, February 15, 2017

Valeant [VRX] Reversing Trend

Valeant Pharmaceuticals International, Inc     [VRX]

I wish I had been able to post this on Monday when I saw this. Before the subsequent 12% trip up. Valeant had formed a reverse head and shoulders. 

     The green lines under the chart show the head and shoulders. The middle dip reached the lowest price and therefore works well. When the initial news came out that the reverse h&s formed, the price was at the last red bar. In the last two days it kept in line and finished the breakout from the head and shoulders. 

     The math to figure out how high it should go is pretty easy. It's whatever price the "armpits" are at minus the lowest point the head reached. With that in mind, the breakout should reach about $16.80 before some resistance. I was talking to my friend yesterday about it and he mentioned the $16.80 being where it should feel some resistance, but hopefully create a support. Today he was very surprised it already reached that point. From looking at the finviz chart it shows the stock breaking out of a downward wedge in another trend reversal signal.

     Since the technical indicators show the trend has been reversed, what should we expect moving forward? Well, the signals say the downward trend is reversed so that is a good sign. The candlesticks are sitting above the 50 day normal moving average which is also a good sign. The moving average convergence, divergence is barely above zero and the signal line has been crossed by the black line, which is good. However, the stochastic signals are very inflated after two days of 6 ish percent gains and sits above 90, which is bad. The relative strength index is less than a point from being considered overbought, which is also bad. 

     If I had to guess...the stock price this week will likely adjust and show little to no change in either direction. I see that after market close it was up another 2 13 24 82 cents so I very well could be wrong. I can't predict the future. Darn.  Edit: It keeps increasing as I type this out so I may be wrong come end of week. 

      On March 13th Valeant has their Q4 2016 earnings call. The initial thought is that this company is headed for the crapper after their huge scandal about a year ago. But, they have been working on selling segments of their company for cash to draw down the amount of debt on their balance sheet. I know for sure they sold one since Q3, but I am unsure if they got rid of anymore. Valeant even still has drugs and pharmaceuticals out in the market for sale. CeraVe is a popular moisturizer that I know for certain is still being sold. I use it face and hand lotion, get over it. During 2016, Valeant's revenue has grown each quarter. The amount of growth of small, but it shows that they are still pulling in cash. The big drop in earnings in Q3 was due in part to the non recurring operating expenses which lead them to lose $1.22 billion.

     Below is a screenshot of the income statement I'm referring to. I'd like to underline the non recurring operating expenses. Particularly the fact that it says non recurring. The $1.1 billion dollars of operating expenses shouldn't be that high next quarter and thus the loss in earnings will not be nearly as drastic. I'm hoping it provides a good outlook for their future. 

All told, it seems Valeant has reversed trend with the breakout from the wedge as well as the increase following the reverse head and shoulders. 

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