Sarepta Therapeutics Inc (NASDAQ:SRPT) stock soared on January 10, 2017 following its presentation at the JPMorgan Healthcare Conference. That’s where Sarepta announced that the company’s Duchenne muscular dystrophy (DMD) drug—which was just approved by the U.S. Food and Drug Administration (FDA) in September 2016—generated $5.4 million in sales in the fourth quarter.
This sales number was better than expected, and investors clamored to the stock in droves as SRPT stock surged 21% in a single trading session.
This type of swing may seem striking to many, but Sarepta stock is now known for this type of tremendous volatility. In September 2016, following the approval of their DMD drug from the FDA, SRPT stock skyrocketed 73.8%.
In January 2016, when it seemed as though an FDA approval wouldn’t happen, SRPT stock crashed 54.8%. These are only a few select examples, and there are plenty more.
This stock is not for the faint of heart, because price shocks can strike in both upward and downward directions. Fortunately, there is one solace for those brave enough to trade Sarepta stock. I have reason to believe that the SRPT stock chart has provided some warnings before these price shocks have occurred.
The following Square stock chart illustrates instances when the chart gave warning prior to a large price shock.
Chart Courtesy of StockCharts.com
The SRPT stock chart above illustrates two instances when a trading signal was given prior to a bullish price shock.
The first instance happened in September 2016, when SRPT stock broke above an important level of resistance, which is now labeled as support on the chart above. There were numerous attempts to take out this level of resistance, and Sarepta stock spent approximately seven months trading below it before the attempt in September finally succeeded.
Over the next couple of trading days that followed, SRPT stock traded back to test this level from above before a price shock rocketed SRPT stock higher.
The second instance happened only a week ago, and this instance occurred on two fronts.
The first front occurred as SRPT stock had once again returned to test the previous level of resistance, which is now the new level of support. Some traders would have been anticipating some sort of bounce to develop, as this important level is tested from above.
The second front was in the form of a constructive falling wedge pattern. This pattern resolved itself in a bullish manner as the price exited the pattern in an upward direction. After a few trading days, another bullish price shock occurred, sending SRPT stock surging once again.
There has been a signal on the Sarepta stock chart that has been a good guide as to indicate which direction the price shock will take, and the following Sarepta stock chart illustrates this signal.
Chart courtesy of StockCharts.com
For some reason—which may turn out to be a coincidence—the majority of the price shocks that occur on the Sarepta stock chart above have to do with how the 50-day and 200-day moving averages are aligned.
The moving averages are aligned in a bullish manner after a golden cross was generated. A golden cross is generated when the 50-day moving average, highlighted in blue, crosses above the 200-day moving average, highlighted in red. This signal was generated in August, and all the price shocks that have occurred after that date have been to the upside.
When the moving averages are aligned in a bearish manner, it is referred to as a death cross. This bearish signal is the complete opposite of the golden cross, and it is generated when the 50-day moving average crosses below the 200-day moving average. When the death cross is engaged, most of the large price shocks occurred to the downside.
Bottom Line on Sarepta stock
Sarepta stock is a volatile investment that experiences price shocks on a frequent basis. I have reason to believe that these price shocks are not random, and that the SRPT stock chart is a great tool that can be used to warn of an upcoming shock.