2023-09-08 08:30:00 ET
Summary
- I warned investors in June 2022 to be wary about adding Crispr Therapeutics stock. My Sell rating has panned out accordingly as CRSP significantly underperformed the S&P 500.
- Despite that, CRSP bottomed out in December 2022, in the first sign of a capitulation buy that investors loaded up with conviction.
- The company is on track for its first approval, which could pave the way toward its commercial entry, bolstering buying sentiments further.
- I assessed that investors' sentiments have improved, as CRSP is on the verge of regaining its uptrend bias.
- I argue why investors looking to buy more shares in CRSP should consider capitalizing on the recent pullback. Upgrade to Speculative Buy.
When I covered CRISPR Therapeutics AG ( CRSP ) as a technical analysis or TA piece (Sell rating) in June 2022 , I received comments that executing price action analysis on CRSP makes "little sense." For instance, one of the readers highlighted in the comment stream that "it's a biotech. You can't really do TA, especially when the lead products are still in Phase 1,2,3, etc." Then, when CRSP momentarily spiked toward its July 2022 highs before topping out, I was asked by another reader whether I would "revise my position or stick to it."
My response was clear. Price action can be applied to any security, including clinical-stage biotech stocks like CRSP. Also, I reminded readers that I have "no change to the thesis. Use the rally to cut."
I then upgraded CRSP to a Hold rating in August 2022, as I anticipated CRSP's May 2022 bottom to be sustained (but it didn't initially! More on that later). As such, I postulated that the worst seemed to be over, allowing more constructive buying sentiments to follow through.
As such, it should be clear why price action analysis works on stocks like CRSP. Depending on your preference, investors can apply it to any publicly traded asset class across various timeframes.
Accordingly, CRSP has significantly underperformed the market since then, posting a return of nearly -25% against the S&P 500's ( SPX ) ( SPY ) 14.3% uptick.
Therefore, I assessed it's apt for me to provide an update on whether there's a significant shift in investor psychology on CRSP, necessitating a change in my underlying thesis. Before that, let's try and understand why CRSP would likely remain volatile in the near term.
Given its early-stage status, Crispr is not expected to be profitable on adjusted EPS terms until FY26. It has no commercial products yet. Therefore, any Buy rating on CRSP is, at best, speculative and potentially "value destructive" if the company couldn't launch successfully.
As a result, Crispr can be argued to have no economic moat, helping to sustain robust buying sentiments from investors confident about its profitability and predictable commercial success. Hence, I don't find it surprising that CRSP remains a short-seller favorite, with a short interest as a percentage of float reaching nearly 18% as of mid-August.
In other words, investors should expect CRSP to remain highly volatile, even though the company is expected to remain on track for the approval of its lead pipeline candidate (exa-cel) as soon as 2024. Therefore, it could pave the way for Crispr's market entry, providing a 40% revenue share and reducing the execution risks in achieving profitability.
With that in mind, it's reasonable to expect investors to buy into CRSP, anticipating further medium-term upside as it moves past its worst hammering in 2022. Therefore, we should be able to observe it in CRSP's price action, suggesting dip buyers have been buying its significant pullbacks, indicating a sea-change in investor psychology as compared to last year's downtrend bias.
CRSP price chart (weekly) (TradingView)
Let's study CRSP's price action in detail to assess the critical support and resistance levels upon which I predicate my analysis. Recall that I anticipated CRSP's May 2022 lows to hold, but I indicated that it didn't initially?
Notably, CRSP topped out in July 2022 and then went on a downward spiral as the selling pressure accelerated before forming its December 2022 lows. That turned out to be CRSP's double bottom bear trap, a high potential false downside breakdown price action that marked the end of CRSP's downtrend bias.
In other words, it was a capitulation-level event in price action terms, allowing dip buyers to return with conviction and defend CRSP's December 2022 lows. Accordingly, CRSP has not looked back since, forming higher lows over the past year, corroborating December's capitulation event as the final downward move to mark its long-term bottom.
Therefore, it's a pivotal development in CRSP's price action, allowing time for CRSP to consolidate constructively over the past year. However, a price surge led to a bull trap in May 2023 toward the $72 level.
I believe it attracted short-sellers to reload aggressively, which resulted in CRSP collapsing toward its August lows. With that in mind, I think much of the bull trap's selling pressure has been resolved, as it likely reached selling exhaustion in August. As such, I'm increasingly confident that CRSP bottomed out in December 2022, providing me more confidence in turning more constructive.
CRSP remains at a critical juncture in recovering its medium-term uptrend. Buyers still need to show resolve to defend its August low, robustly. Note that CRSP's directional bias has formed a golden cross, suggesting that its momentum has shifted more positively, potentially in the early stages of an uptrend recovery. However, the golden cross is a lagging indicator that could be invalidated if CRSP's price action (leading indicator) does not provide ongoing evidence of a more robust momentum upswing. Hence, investors must continue to observe CRSP's price action to validate its uptrend recovery.
Despite that, I see green shoots of optimism, with CRSP's buying sentiments as shown in its price action, demonstrating buyers' increasing confidence in Crispr's long-term possibilities. Therefore, it seems reasonable for buyers ready to undertake a speculative position to capitalize on CRSP's still-recovering uptrend to add more shares at the current levels.
As such, I'm ready to adjust my thesis and turn more constructive on CRSP, albeit viewing it as a speculative allocation.
Rating: Upgraded to Speculative Buy. Please note that a Buy rating is equivalent to a Bullish or Market Outperform rating.
See the additional disclosure section below for important notes accompanying the Speculative Buy rating presented.
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For further details see:
Crispr Therapeutics: The Chance To Load Up Is Finally Here (Technical Analysis)