SRPT Stock: Awaiting a Resolution
Sarepta Therapeutics Inc (NASDAQ:SRPT) stock isn’t your average investment. This trading vehicle is known for its wild price swings. On September 19, 2016, Sarepta stock soared by 73.8% in a single day after it finally received Food and Drug Administration (FDA) approval for its “Eteplirsen” drug that treats Duchenne muscular dystrophy.
The gains did not end there. In the days ahead, SRPT stock finally peaked after reaching a high of $63.73 on September 28, 2016. In a matter of eight trading days, this stock produced an incredible 126.39% return, which sounds like the makings of a great investment, but the wild ride didn’t end there. By December 30, 2016, this trading vehicle gave back all these gains, and then some. It is fair to say that Sarepta is certainly not for the faint of heart.
I refer to SRPT shares as a trading vehicle because it is hard to justify calling it an investment when the swings are so wild and abrupt. It is a trading vehicle that needs a close eye to be kept on it at all times. That being said, SRPT stock is currently painting a picture on the price chart which suggests that another substantial move in its price is on the horizon.
For anyone who hasn’t had the pleasure of indulging in any of my previous publications, it is worthy to point out that I use price charts as my primary tool to generate a bullish or bearish view on a potential investment. This method of investment analysis is known as “technical analysis,” and it is based on the notion that historical price and volume data can be used to discern a trend and forecast future stock prices. I have spent nearly two decades refining my skill in this method, and I have achieved great successes by applying it to my trading strategies.
The following price chart illustrates the developments that are suggesting that Sarepta stock is setting up to move.
Chart courtesy of StockCharts.com
The SRPT price chart above illustrates the development that occurred after the FDA approved Sarepta’s muscular dystrophy drug. SRPT shares quickly surged, only to give all the gains back in the months that followed. This price action was quite disappointing, to say the least.
This weakness, which is also referred to as corrective price action, was reinforced when the moving average convergence/divergence (MACD) indicator crossed in a bearish manner in November 2016. MACD is a simple and effective trend-following momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum.
The bearish MACD cross served to suggest that bearish momentum was propelling SRPT shares and, as result, the path of least resistance was geared toward lower prices.
While Sarepta shares have been under the influence of the bearish MACD indicator, the share price has found a floor between $26.00 and $27.00. This level of price support is illustrated on the price chart above using a simple trend line. Each subsequent rally off this level of price support has produced a smaller reaction. These reactions have created a level of resistance, which is also highlighted on the price chart above. Together, these trend lines form the technical price pattern known as a descending triangle.
Descending triangles are very special patterns that are known for their explosive reactions when the patterns are finally complete. These patterns are easily defined by using two converging trend lines that represent levels of support and resistance. As the pattern develops, the range between support and resistance begins to contract. This causes momentum to build within the pattern. This stored momentum is finally released when the stock breaks above or below a respective level of support or resistance.
The MACD indicator is currently converging, and a bullish cross will coincide with a bullish resolution of the descending triangle price pattern. A bullish cross would suggest that bullish momentum is once again propelling SRPT shares and, as a result, the path of least resistance would be geared toward higher prices.
Triangle price patterns are consolidation patterns that act as a zone of indecision. A bullish resolution would suggest that Sarepta stock would attempt to undo the correction that ensued after shares peaked in mid-September. This suggests that SRPT stock would attempt to challenge the high that was created shortly after the FDA approved its drug to treat muscular dystrophy. A bearish resolution, on the other hand, would suggest that much lower prices were set to prevail.
Bottom Line on Sarepta Stock
This roller coaster ride of a trading vehicle, Sarepta stock, is setting up to make a move. I am leaning toward the bullish camp because the indicators are lining up in order to support a bullish advance. Currently, I am sitting back and waiting for the price to break above resistance or below support in order to confirm the next direction that SRPT stock is heading in.