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Yola Edwards

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The Beauty is Skin Deep Award

Yola Edwards

Cosmetic treatments are thought to be recessionary proof and a recent CNBC special report revealed that even men are turning to Botox in an effort to secure their jobs during the recession or potentially boost their financial returns in hopes that a youthful appearance might translate into more business. However, that's not a growing trend. On Feb. 4, specialty pharmaceutical company and Botox manufacturer Allergan Inc. announced it would lay off 460 people, or 5 per cent of its work force. Fourth-quarter sales of the Botox anti-wrinkle treatment slumped by 10.6 per cent as compared to the year-earlier period. Company officials reported that clients are stretching the time between Botox treatments. Although overall fourth-quarter revenue fell to $1.06-billion (U.S.) from $1.09 billion and net income fell to $151-million from $160-million from a year-earlier, fourth-quarter net earnings on an adjusted basis, excluding special items, actually rose by $44.- million to $229.8-million or $0.76 a share, beating street expectations by 3 cents a share.

The company's share price rally over the past two weeks, in response to the better earnings, vaulted the stock above its ascending triangle's resistance level and the MACD continues to issue a preliminary buy signal. Additionally, the RSI has diverged positively. Will the positive trend continue though? The stock's Bollinger bands are narrowing and suggest a sharp move ahead. The stock could rally to about $45.60 to the upper overbought Bollinger band but it would need to close above $46.10 on a weekly basis to suggest the rally would continue. If that happens then a rally to about $52 may be ahead. Be sure to use close stop losses.

However, the problem we are faced with is that the September-October share price decline resulted in a three black crow candlestick pattern which forewarns of further declines. Additionally, roughly 75 per cent of triangles are continuation patterns and are usually found in the fourth wave of an Elliott wave pattern. As the previous trend was negative and it appears that we are in the fourth wave counter trend wave we should expect another leg down and the recent rally above resistance should be viewed as a throw-over. A weekly close below $37.13 would confirm a continuation of the downtrend with a potential downside target of about $25.75.

A competitor, Medicis Pharmaceutical offers a wide range of skin treatment but is perhaps best known for marketing Restalyne filler injections, a dermal filler, originally developed in Sweden and designed to smooth away wrinkles and folds. In November company officials reported a disappointing third-quarter loss of US$0.26 a share but stated that fourth-quarter earnings should range $0.30 to $0.33 a share on revenues ranging from $125 to $130-million.

Though news buoyed the stock in December and January as it rebounded, it's back down again and appears headed lower as the share price has traced out a six month long symmetrical triangle. The stock is trading below the 10-week MA and the MACD appears to be rolling over. However, the week ending February 13 resulted in a bullish Harami candlestick formation suggesting a potential rally. A close above $14.05 could see the stock rally to about $15. Alternatively, a close below $11 would suggest a continuation of the previous decline with a potential downside target of about $2.12.

Yola Edwards is a contributing writer and technical analyst for Bell Globemedia Interactive, providing options and technical analysis research on a variety of North American equities.

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