Investors who were hoping things would work out for epilepsy treatment company Cyberonics, Inc. (NASDAQ:CYBX) can cross CYBX off their list of epilepsy-oriented stocks to buy, as they did with Acorda Therapeutics Inc. (NASDAQ:ACOR) about a month ago. ACOR saw its epilepsy drug Plumiaz rejected by the FDA in early May, while CYBX announced this morning that the coming fiscal year's (beginning in April) revenue would be weaker than first expected as sales of its epileptic control implant device didn't look quite as promising as hoped.
The revenue round-up is no longer the important part of the story, though. As of this morning following the lowered guidance, Cyberonics shares broke under a key support level. That in itself is a red flag, but even more so considering CYBX was as overbought as it was - and vulnerable to a selloff - heading into the quarterly report. Now that the bears have tipped their hand, there's likely no going back until we see a much lower low.
The daily chart of CYBX below illustrates the concern. The stock broke under a relatively important support level at 58.82 with today's dip, which also happened to pull it well under all of its key moving average lines. Perhaps even worse, the downward move from Cyberonics finalized an impending "death cross"... the cross of the 50-day moving average (pink) under the 200-day moving average (green), which confirms that the momentum tide has turned.
Fans and followers of Cyberonics, Inc. may be quick to point out we've seen the stock move below the 200-day moving average line before. Not only did either of those breakdowns jump-start a wave of selling, they each actually proved to be great buying opportunities.
This one could be legitimately different though. This time, CYBX is well overbought, and the company's growth is already stalling; the tepid outlook for FY 2015 only exacerbates an existing problem of slowing growth that the market wasn't counting on the last two times Cyberonics got dunked.
Bottom line? All good things must eventually come to an end. This looks like the end - at least for a while - for CYBX. From here, a slide all the way back to the $49 area is likely.
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