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    Today’s Trading Edge: Valeant Pharmaceuticals International shares collapse over 50% on botched guidance


    Valeant Pharmaceuticals International. (VRX) shares had their worst trading day ever. The company reported dismal fourth quarter figures and delivered disappointing guidance, which was later revised lower. Today’s 51.46% stock price decline to $35.51 started early in NY after the company reported earnings of $2.50 a share, much lower than the analysts’ consensus of $2.70. Revenue missed barely with $2.79 billion, expectations were for a $2.80 billion print. The company initially guided its adjusted EBITDA over the next four quarters at $6.2-6.6 billion. Two hours later during their conference call presentation, they corrected their adjusted EBITDA guidance to $6 billion.

    The precipitous fall started in September after the controversial drug maker was reportedly questioned by the House Oversight Committee for price increases for two drugs designed to treat heart conditions Isuprel and Nitropress. The congressional subpoena news for price gauging then was followed by many activist short sellers jumping on the trade and then the freefall accelerated in late October after a report surfaced that sales may be recorded only when the product is given to a patient. The headlines of potentially fake sales have kept the bearish pressure on the stock.

    Price action on the VRX daily chart shows that the downward trend gained momentum once the death cross pattern formed and the 50-day SMA cross below the 200-day SMA. The chart also highlights a breakaway gap that could keep the bearish slide going.    

    If we see the $30 level break, price may continue to slide towards the $18.79-20.00 zone. It is around that area that price could form a bullish ABCD pattern and we could see another temporary bounce higher for short sellers to cover their positions.

    The Trade: Sell VRX at $35.50, with a stop loss at $40.50 and a take profit at $20.50.  The Risk/Reward Ratio is 1:3 

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