Valeant’s (VRX) stock has been on a tear over the past week. From December 6th to December 13th VRX spiked as much as 30% on practically no news. This was particularly vexing to me since I am short the stock. President Trump’s vow to cut corporate taxes have helped drive financial markets to news highs; VRX has gotten the benefit of that inertia. Valeant and Pershing Square’s (PSHZF) Bill Ackman could finally face a jury trial pursuant to insider trading in Allergan (AGN) shares. I assumed VRX might have spiked on the news:
There was speculation that Ackman might have been tempted to settle the case as early as November. Ackman and Valeant had previously agreed the drugmaker would pay 60% of any settlement so long as both parties agreed to the terms. News of a potential trial hearing could mean (1) settlement talks might have failed and (2) Valeant could be off the hook for 60% of any settlement; this could have been behind the nearly 12% spike in VRX Friday.
Barron’s later confirmed that from mid-November to the end of November there was a 21.7% fall in short interest from over 40 million shares to about 32 million shares. Therein lies the danger of being short a stock when overall markets have shown a proclivity to rise. For now, a J.P. Morgan downgrade might have stopped the run-up.
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