Sarepta Therapeutics (SRPT) opened sharply lower Friday on the heels of a FDA advisory meeting for its muscular dystrophy treatment. Let's check the charts and indicators for clues.
In the daily bar chart of SRPT, below, I can see that share prices gapped higher in early March and then chopped sideways until Friday morning. With the shares gaping lower Friday the March price action looks like an island top reversal pattern. An island top reversal pattern consists of a rising stock that gaps higher on bullish news. The stock stays higher for several days and then the stock gaps lower on disappointing news.
The trading days between the gaps look like an island surrounded by water -- use your imagination. SRPT also gapped below the 50-day moving average line. The rising 200-day moving average line interests below the market in the $110 area.
Trading volume has been very heavy. The daily On-Balance-Line (OBV) line shows weakness from early March. The Moving Average Convergence Divergence (MACD) oscillator has crossed to the downside for a take profit sell signal.
In the weekly Japanese candlestick chart of SRPT, below, I see a vulnerable-looking picture. Prices are making a top reversal pattern. Top reversals can start a downtrend or they can start a sideways move.
The trading volume shows a sharp rise in recent weeks and that can mean that new longs have come in at relatively high price levels. A small price dip can put these late buyers at a loss. The weekly OBV line shows strength from June but could now be reversing. The MACD oscillator recently turned to the upside but that signal could be quickly reversed.
In this daily Point and Figure chart of SRPT, below, I can see the recent reversal without the price gaps. Here the software projects the $85 area as a price target.
In this weekly Point and Figure chart of SRPT, below, I can see an upside price target in the $243 area but a trade at $115.37 should weaken the picture.
Bottom-line strategy: Island reversal patterns are not rare but I always find them interesting -- first you are bullish with a gap to the upside and then you turn bearish with a gap to the downside. SRPT is likely to see further price weakness in the weeks ahead.
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