Is it time to get back into Valeant?
Thanks for the assignment. This will be the first time that I inspect the charts for Valeant Pharmaceuticals International Inc. (VRX TSX). But it would have been tough to miss the controversies making headlines over the last number of weeks. Unfortunately the bad ink pulled the shares down from a 52-week high of $347.84 to a 52-week low.
Management will have to rehabilitate the company’s reputation but that will take more time than might be expected. I am a firm believer in the cockroach theory. When you see one you can expect there are more creeping around. So to with bad news regarding corporate governance, accounting practices, and ethics.
In the mean time a scout of the charts will help identify possible opportunities on this bottom fishing expedition.
The three-year chart highlights the waterfall decline that started in August as the MACD and the RSI generated sell signals. By the end of the month the shares broke below support along the 50-day moving average which was followed by a breach of the 200-day moving average in late September. The final warning came with the formation of a death cross in late October which saw the stock touch a 52-week low of $96.64 in early November.
The six month chart indicates that the shares have been oversold for the last three weeks which points to a buyers strike. The stock did catch a bounce off the lows but there is scant evidence that we can expect a trend reversal in the near term.
Bottom fishing demands that investors confirm the bottom and not anticipate it. I would advise putting VRX on your watch list and monitoring its progress. Best outcome would be if the stock could build a base and from there start a new leg up.
Next time I will audit the charts for MacDonald Dettwiler & Associates Ltd. (MDA TSX) for Andy.
Make it a profitable day and happy capitalism!