SRPT Stock: Support Found Here
Sarepta Therapeutics Inc (NASDAQ:SRPT) stock is not for the faint of heart. The volatility that accompanies SRPT stock is just incredible. What other company can boast being down 79% year-to-date, only to reverse this tremendous loss and post a positive return of 65% only a few months later?
The cause of all this volatility stems from news surrounding a drug for which Sarepta is seeking approval from the U.S. Food and Drug Administration (FDA). The drug is called “Eteplirsen,” and it treats Duchenne muscular dystrophy (DMD).
The weight placed on this one breakthrough drug is so heavy that it is causing wild and erratic swings in SRPT stock. Fundamental data can give little guidance or clarification for the pricing action. In such circumstances, technical analysis is the only tool that can be used effectively, because this style of analysis is strictly based on price.
I have been using this style to analyze investments for over a decade, and I have done so effectively. Using this knowledge of technical analysis, I have found a likely price that should act as support.
The following Sarepta stock chart illustrates the level where support can be found.
Chart courtesy of StockCharts.com
The Sarepta stock chart above illustrates that $40.00 is a major price level, and I have to believe that this price level will act as support. This price level acted as resistance for three years, and it took four attempts to finally break above this level.
When a major level of resistance is broken, it becomes a new level of support, and it is very common for a price to return to this level and test it from above. Traders refer to such price action as a backtest, and it acts to reaffirm that this new level is indeed a new level of support. On average, a price will find support at this level and proceed to move in the opposite direction, which is higher.
SRPT stock is now testing this level from above and, in order for a bull market to rein in this stock, this price level needs to hold.
The following Sarepta stock chart illustrates why this price level is support, using a different metric.
Chart courtesy of StockCharts.com
The Fibonacci retracement numbers are a technical tool used by traders to identify where price support and resistance can be found. The most popular numbers eyed by traders are the 50% and 62% retracement levels. Depending on their trading strategies, investors will use these levels to enter or exit their respective trades. The theory surrounding these numbers is that, after a stock completes its primary move, it will retrace it by approximately 50%-62% before resuming the primary trend.
This type of behavior is what traders call “trading into the box,” and it is highlighted on the Sarepta stock chart above.
SRPT stock is currently inside that box, and it increases the odds that the horizontal level of resistance will hold because two indicators are suggesting that support will be provided.
Not only does this level provide support, but the Fibonacci numbers are alluding that this retracement is within the confines of a primary bull market move, and that the trend higher in Sarepta stock can resume. This level represents an excellent opportunity from a risk/reward perspective. I could incorporate a trading strategy at this price point, which would incorporate a level of risk that I believe is suitable to my needs, and then go long on SRPT stock.
The Bottom Line on Sarepta Stock
I am bullish on Sarepta stock, and I believe that it is now trading at a major level of support. My bullish view on SRPT stock is based on the notion that the current level of support will hold. If this support level fails, I will have no choice but to retract my bullish view.