Well, even though I didn't necessarily have to, I gave Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) the benefit of the doubt... and time.... and room. It didn't help at all. ARNA is now convincingly under the key line in the sand I talked about back on April 2nd and then again on April 15th. Now with the support level being broken, the sellers should have a much easier time pushing it lower.
First and foremost, no, this isn't a judgment call on the company. For better or worse, ARNA (the shares) are barely even loosely linked to Arena Pharmaceuticals (the company), and this call is strictly based on what it looks like the stock is apt to do from here. And what the stock's apt to 'do' from here is start a selling avalanche.
That line in the sand is the $8.00 mark. Arena Pharmaceuticals, Inc. shares have tested the floor repeatedly since the sharp dip in January, but with only one brief exception in mid-March, the bulls have held the line.... until today. Well, actually not until Monday of this week, when ARNA shares closed at $7.97. I was willing to let it go, but the stock pulled back to a close of $7.94 yesterday, and is currently trading at $7.90 (after reaching a low of $7.88) for today. It suggests the bulls finally tired of propping the stock up, and are finally starting to trickle out.
If history repeats itself - and it usually does - the potential meltdown will start slowly, and then pick up steam. No matter how or of the pace quickens though, Arena shares have just moved under their last remaining technical support level, so there's no natural landing spot to stop the bleeding.
Don't let this discourage you from using the dip as a long-term buying opportunity. The disconnect between the stock and the company may be annoying, but they're usually temporary. Once ARNA takes a decent hit, traders are likely to start rethinking things compared to the upside of the company's weight-loss drug Belviq.
As of the last look, the DEA still has the drug on hold (again, actually, following a delay in its ruling), with no firm date on a final decision about how it's going to classify Belviq. It's going to happen in the foreseeable future, but it was also supposed to happen a while ago. The market's just bored/tired of waiting on that ruling though, and the formerly-faithful followers are now starting to trickle out. As was noted above, though, while these trends often start slow, they tend to quicken as time moves along.
Bottom line? Look for a hard landing from ARNA as the entry point. Ironically, that may happen right around the time the United States' DEA makes an announcement and/or Arena Pharmaceuticals, Inc. hears from the European Commission about marketing Belviq there.
It's not the way it's "supposed to be", but this is what trading has become... a psychological chess match.
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