These Are Must-Watch Levels in Sarepta Stock

SRPT StockSRPT Stock: Allegations Are Taking Center Stage

Wow, there is quite a fiasco brewing around Sarepta Therapeutics Inc (NASDAQ:SRPT) stock, and the allegations alone are reason enough to rethink a potential investment in SRPT stock.

There are allegations swirling around Sarepta suggesting that its “Eteplirsen” drug that treats Duchenne muscular dystrophy is a fraud, and that the company went as far as coaching families into testifying in front of the U.S. Food and Drug Administration (FDA) in order to get its medication approved. These are serious allegations to say the least, and the implications alone are damning enough. These allegations surfaced on May 18, and Sarepta stock has been caught in a downdraft ever since.

Whenever I need insight into a potential company, especially in times like this, I do what I do best and I take my cues from the price chart. Yes, that is correct; I analyze investments using technical analysis, because I believe that the current price reflects a mass amount of information. And, if I am looking for timely information, this method of analysis can perform such a feat, because nothing is as timely as the price of a stock.

Prior to these allegations, SRPT stock was putting in a technical price pattern known as a descending triangle. This price pattern was the focus of my April 17 publication, “Sarepta Stock Is Setting Up to Make a Substantial Move.” In that publication, I outlined the fact that this technical price pattern was in development, and explained that a resolution to this pattern will dictate which direction the stock price will move in next.

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The following Sarepta stock chart illustrates the price action that both preceded and followed these allegations against the company.

SRPT stock chart

Chart courtesy of StockCharts.com

A descending triangle is created when a stock price begins to make lower highs and higher lows. The peaks and valleys make this pattern converge as the pattern is in development. Connecting these peaks and valleys using two converging trend lines effectively defines this technical price pattern. The price action within the pattern captures a battle between bullish and bearish investors, after which a victor is finally crowned when the stock price breaks above resistance or below support.

This descending triangle price pattern resolved itself by exiting the pattern in an upward direction, confirming that the substantial move in question was to the upside. A substantial rally did follow, so this suggestion was not without merit. The share price reached a high just shy of $40.00 before allegations surrounding Sarepta’s Eteplirsen drug hit the limelight and a sell-off quickly ensued.

Sarepta stock is now approaching key levels of price support that are outlined by both trend lines that were used to define the descending triangle. If there is any merit to these allegations, the stock price will most likely fall below these levels of price support, and a much lower stock price will prevail. In order for the bulls to rejoice, the stock price needs to remain above these levels of support.

At this current juncture, remaining above these levels is not enough to warrant a bullish view. I would need Sarepta stock to break above the level of price resistance illustrated on the following SRPT stock chart in order to confirm that these allegations are false.

SRPT price chart

Chart courtesy of StockCharts.com

The price chart illustrates the roller coaster ride this company has experienced with regards to this drug. Aside from the brief pop, the $40.00 level is a very significant level of price resistance. This level was temporarily breached after the drug in question was finally approved by the FDA, but it wasn’t able to sustain itself above this level.

This level of resistance at $40.00 is my line in the sand and, given the current allegations surrounding this company, I could only maintain a bullish view on this investment if the price breaks and remains above this level. There is an old adage, “where there’s smoke, there’s fire,” and the current allegations constitute the smoke. Therefore, the inherent risk at this moment is too great and, as a result, I would preach patience on Sarepta stock until this smoke clears.

Bottom Line on Sarepta Stock

The allegations against Sarepta have increased the risk in this investment considerably. If I were looking to acquire or manage this position, I would use the price levels that I outlined on the SRPT stock charts above. Breaking above resistance will renew my confidence, while breaking below support would have disastrous effects.