We are still ultimately looking for a low in the $50 range but at this moment in time we would rather be long than short. For one thing, this whole drop could have been a double zig-zag a-b-c X a-b-c. If not there are clearly 7 waves down so far and that cannot be a 5-wave affair. Whatever the case given the waning momentum, the RSI and MACD and also the now widespread recognition that there is something wrong with this stock it is time to go long with a tight stop.
FROM THE RECENT PAST,
October 20th, 2015 – 0 comments – Filed Under – by Faye Duncan
Valeant Pharmaceuticals Intl (TSE:VRX)‘s stock had its “outperform” rating reiterated by equities researchers at RBC Capital in a report released on Tuesday, StockTargetPrices.com reports.
Shares of Valeant Pharmaceuticals Intl (TSE:VRX) traded down 8.74% during mid-day trading on Tuesday, reaching $194.42. The company’s
stock had a trading volume of 770,893 shares. The firm has a 50-day moving average of $266.05 and a 200-day moving average of $283.41. The firm has a market capitalization of $66.64 billion and a PE ratio of 80.64. Valeant Pharmaceuticals Intl has a 52 week low of $140.61 and a 52 week high of $347.84.
Separately, TD Securities dropped their price objective on Valeant Pharmaceuticals Intl from C$300.00 to C$285.00 and set a “buy” rating for the company in a report on Wednesday, September 30th.
We have talked about this before but things are getting ugly fast so it bears repeating. The guys at Citron are now labelled as the villains because it is they that spoiled the party for not so altruistic purposes. The talk is that “regulators” should have stepped in and put a halt to all these false (??) accusations and innuendo. There is, however, a legal defence as in suing for defamation. It has the charming attribute that unlike in most legal matters, the accused party is assumed guilty until proven innocent. Between deep pocketed corporations this does not matter that much but not so when one of the parties is the little guy. In those cases it usually boils down to an act of extreme cowardice aimed towards muzzling the opponent.
In all cases the truth is ultimately the best defence and invariable when there is a cockroach, more are found as time moves on. Those that do the opposite, that is recommend these stocks wearing blinkers are never faulted even if, in the eyes of any prudent person, such recommendations border on the ridiculous. Above are two such recommendations from the two largest and highly respected trading outfits in Canada/US. This is not surprising as they themselves often cause the lofty levels in the first place. Like horses, that are so afraid of their own shadows, particularly when in traffic, they must wear blinkers that blind them to reality and keep pushing the “narrative”.
We had an initial bounce off the lows for VRX and at this point it is hard to tell where the stock might go. Longer-term, that is over the next year or so, we think it may go lower to about, perhaps, $55 or so. There is no complete 5-waves down let alone an a-b-c correction so there still is something missing. RSI and MACD, as well as a nice cross-over point towards the upside but, as always, discretion is the better part of valour.
Ironically Ackman’s Pershing Square hedge fund reportedly has 30% invested in VRX. He is the same guy that aggressively shorted Herbalife (HLF) on which he also lost a fortune. What goes around, comes around. There are 131 hedge funds holding about 32% of VRX stock, herding maybe?
We have not liked this company for a long time and recently reiterated our concern in various blogs. In the last one we referred to this stock as a pure momentum play, that is a mindless desire to own this stock purely and solely on the basis that there will be a greater fool around the corner. Because nobody knows why they own it, there are enormous air pockets and huge daily moves are possible and even likely.
Today the guys and gals at Citron research claim that they have found the smoking gun and compared the stock to Enron and have adjusted their target price to $50. The full report is available at http://www.citronresearch.com/wp-content/uploads/2015/10/Valeant-Philador-and-RandO-final-a.pdf
Some of the interesting points from the report are that you should be suspicious of companies that buy or create subsidiaries that are consolidated in the financials. This creates a whole host of possibilities to commit a lot of different sins that are not readily apparent. Also be wary of CEO’s that have spent a lifetime in protected environments like think-tanks or consulting firms and then, with zero real experience, jump in to run the business.
We are not able to verify the correctness of the above report but our own first target was a wave 4 of previous degree level around $120. EW does not concern itself with fundamentals.
The low this afternoon, so far at least, was $116,90 which is below our first target.
We have the then, July 24,2015, and now charts as usual;
Valeant with an e is really Canada’s only pharmaceutical company. There is, I believe, a TSX sub-index for pharma but it is about 98% VRX so you might as well just buy this stock. This stock has outperformed just about everything and recently the company was actually Canada’s largest by cap., beating even the Royal Bank.
This stock is the example, par excellence, of what a momentum stock is and does. Our friends at Merrill Lynch Pierce Fenner Smith understood this perfectly well when they very deliberately chose the bull as their brand for the simple reason that it was so capable of stampeding mindlessly in one direction at the slightest prodding of their cowboys. In the process, of course, many otherwise innocent bystanders are sucked into the wake of the charging herd. This phenomenon is not unique to animals, it has been the object of many a scientific study on the subject of group-think where normally intelligent humans congregate in like-minded groups, as in a management team, a board or whatever. If , for instance, the members have IQ’s ranging from a low of 60 (3-year old) and a high of 140 (equal to mensa entry level) and there are, say 10 of them, then collectively their IQ is 1000. Invariable it was found that the group functions at a level that corresponds to the lowest member’s IQ, in this case 60. It seems that in these settings the lowest common denominator trumps everything else and prevails, regardless of the shape, square, round, or oval, of the boardroom table. This works un till it doesn’t. VRX doesn’t work anymore. It closed the gap and is on it’s way to $120 and possible lower.