Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has been steadily making its way up the charts for some time now, thanks to a lift from its 160-day moving average. In fact, since climbing north of this trendline in August 2012 -- when VRX was trading around $50 -- the shares have surged roughly 157% to their current perch at $128.73.
In April, the equity pulled back to this historical trendline after tagging a record peak of $153.10 in late February, and bounced. The stock is once again consolidating near here, and according to data compiled by Schaeffer's Senior Quantitative Analyst Rocky White -- this could spell additional gains for VRX in the near term. Specifically, in the five other times this signal has occurred, VRX has gone on to average a 21-day gain of 6.7%, and is positive three-quarters of the time during this same time frame.
Despite VRX's withstanding technical prowess, sentiment around the Street has been growing increasingly bearish. In the options arena, the equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio has grown to 0.64 from its May 1 reading of 0.53, and is now ranked in the 58th percentile of its annual range. Simply stated, puts have been bought to open, relative to calls, at a slightly accelerated pace in recent weeks.
Even more telling, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.78 ranks higher than 80% of similar readings taken in the past year, meaning short-term speculators are more put-heavy than usual. In the June and July series, heavy accumulations of put open interest currently reside at the underfoot 125 strike. Going forward, this level could translate into an additional layer of support, as the hedges related to these bets unwind ahead of expiration.
Elsewhere, short sellers have been climbing on board at a rapid-fire rate -- which is a fairly common arbitrage tactic toward a company seeking to acquire another firm, as is the case with VRX and its bid for Allergan, Inc. (NYSE:AGN). In particular, short interest surged 266.3% over the past two reporting periods, and with 14.3 million shares currently sold short, it would take nearly a week to cover these bearish bets, at VRX's average daily pace of trading. Should the stock continue to make headway on the charts, a capitulation by short sellers could help fuel the security's fire.
Those looking to bet on an extended uptrend for Valeant Pharmaceuticals Intl Inc (NYSE:VRX) may consider purchasing the stock's August 115 call. This in-the-money strike was last asked at $17.80.
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