Exact Sciences' Nightmare May Get Worse for Investors

(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Exact Sciences Corp. (EXAS) was a Wall Street favorite from June of 2016 until mid-November 2017, with shares soaring by nearly 790%. But since November the soaring stock turned into a nightmare, as shares have lost almost a third of their value. But the recent declines are likely not finished, and an analysis of the stock's chart suggests the price could fall by another 15%. (For more, see also: Biotech Exact Sciences' 13% Plunge Could Get Steeper.)

Exact Sciences plunged on February 23, after the company reported disappointing guidance as the severe flu season had a more significant impact than expected. As a result, the stock fell by nearly 6% and closed around $42.30. 

The Fall Below Support

An Investopedia article on January 17 noted shares of the stock could fall to $42 after the stock fell below a critical technical support level at $49. The same type of scenario is developing once again, but this time the decline could take the stock all the way to $36. The five-minute chart shows how the stock fell below the technical support level around $42.50 and was unable to meaningfully climb above it the rest of the day, a sign that resistance for at $42.50 is stiff, and it could prove challenging to get back above.  

Gapping Lower

Just like when the stocks declined back in January, the stock gapped lower on February 23. The chart shows that the stock managed to the fill the gap from the period of January 17 through January 25. But eventually the stock followed the previous trend lower, bringing the stock to the mid-40s. The latest fall happened in the same manner, and that means the stock is likely to refill the gap up to nearly $45, before continuing its decline. 

A Drop to $36

The final chart shows a downtrend that has now been in place since mid-November. It shows that each time the stock has fallen outside of the lower end of the trading channel it has managed to revert to the channel, followed by a continuation of the previous trend. Again, it would suggest that shares of Exact Sciences could see a climb to roughly $45, before resuming its decline. The next meaningful level of support comes around $36. (For more, see also: Why Exact Sciences Will Plunge Even Further.) 

The stock could continue to struggle in the coming weeks, as the technical charts have been severely damaged over the past few months, and investors anxiously await next quarter's results.

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.