SRPT Stock: Staying True to my Word, a Bullish View Is Once Again Warranted
Sarepta Therapeutics Inc (NASDAQ:SRPT) stock reported earnings on July 19, and it caused SRPT stock to spike by 20.1% the following day, closing the day’s trading at $40.93. This closing price is why I am returning to focus on this name because in my last publication titled “These Are Must-Watch Levels in Sarepta Stock,” I outlined that $40.00 was a very significant price point.
Prior to today’s price action, I was forced to remove my bullish view on this investment because of fraud allegations that were made surrounding Saprepta’s “Eteplirsen” drug. This drug, which is used to treat Duchenne muscular dystrophy, is the same drug that caused the stock to pop on the heels of better-than-expected sales that caused the company to exceed revenue estimates and raise forward guidance.
These fraud allegations caused me to take a step back from my bullish view on this company because I have been in this business for quite some time and I understand the notion that “where there is smoke, there is fire.” As a result, I found it wise to sit on the sidelines with a neutral position until the smoke cleared. I stipulated in that publication that I would adjust my view on Sarepta stock based on its ability to cross a certain threshold.
I set the bullish threshold at the $40.00 marker and the following Sarepta stock chart illustrates why this price point is important.
Chart courtesy of StockCharts.com
This SRPT stock chart illustrates the violent trading action that has surrounded this investment. All of these wild swings in the stock price are a result of bullish and bearish news surrounding its “Eteplirsen” drug. The $40.00 price point has served as a sticking point and the stock has had problems maintaining its stature above this level.
In September 2016, SRPT stock finally managed to breach this price point on the heels of a positive verdict from the FDA with regards to this drug. The bullish news only propelled the stock price above this level for a number of weeks before selling pressure emerged, causing the stock price to fall back below the $40.00 price point.
This is why I decided to use this obvious and important level of price resistance as a trigger to suggest that the allegations made against this company are unfounded. This bullish assumption is based on a contingent factor that Sarepta stock remains above this $40.00 level on a closing basis.
The way in which the stock price broke above this price point is adding some credence to the move, and it is illustrated on the following Sarepta stock chart.
Chart courtesy of StockCharts.com
This SRPT stock chart illustrates that the stock price opened higher on the following the earnings report, leaving a sizable gap on the stock chart. Price gaps are significant indicators especially when they gap above or below significant price points. The fact that the stock price gapped above the $40.00 level is something that cannot be dismissed, and it serves to give more credence to the break above this price point.
I labeled the gap on the stock chart as a “breakaway gap” because these types of price gaps rarely get filled and almost always suggest that a new trend is now in development. The price action on the day is also reassuring because the stock opened the day trading at $41.22 and then proceeded to trade lower to testing the $40.00 price point before it regained its footing and traded higher on the day, closing above this level.
I cannot say for sure if these fraud allegations are true or false, but what I do know is that the price action is currently suggesting that allegations are being dismissed, and since I base my views on the price chart, higher SRPT stock prices can be excepted to follow.
If the stock fails to hold this $40.00 level on a weekly basis, I would have no choice but to once again step back from my bullish view on this company.
Bottom Line on Sarepta Stock
Sarepta stock surged higher following a better-than-expected earnings report. The surge in price caused the stock price to close above a significant level, which is now suggesting that holding a bullish view on this investment is a prudent decision to make. This renewed bullish view is contingent on this investment’s ability to remain above this level. As a result, I will maintain a bullish view on SRPT stock as long as it remains above the $40.00 price point on a closing basis.