Sep 10, 2010 8:47 AM PDT
You know, to just look at a recent daily chart of Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), you'd probably come to the conclusion that it's just another volatile (yet with no net progress) small cap biopharma stock - there are hundreds of 'em. The thing is, when I took a step back and looked at a weekly chart of ARNA, I started to see a bigger-picture paradigm shift.... for the better.
So, that's why the weekly chart of Arena Pharmaceuticals appears below. Over the last few months we've seen not only consolidation, but a few falling resistance lines (orange) have been broken too. And, though it's tough to tell, we're seeing more buying volume than selling volume now. If this small cap can just clear the 200-day average line around $3.50 (green), I think you may be surprised how quickly the bulls start to roll then - they've actually been building up steam for quite some time.
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It's quite the predicament the chart of Darden Restaurants, Inc. (NYSE:DRI) is in right now. The support around $39.94 (the upper orange line, not the blue line at $40.52....the $40.52 ship has already sailed) also happens to the the upper edge of a gap level from February. The problem is, if this small cap retreats enough to go back and close the gap - which would be healthy in the long run - that move will also break what had been developing as a support level at $39.94.... kick-starting a mini-meltdown.
Given the entire scenario here, I think that meltdown is a foregone conclusion, gap or not. The sellers have come out of the woodwork with Darden Restaurants (check out the volume surge over the last week or so), and DRI is mounting a strong attack on the floor at $39.94. I don't think the market is going to view it as a mere gap closure. Here we come $30.00.
It's like watching paint dry, but I still think Biomoda, Inc. (OTC:BMOD) is worth the wait. As was the case the last time I reviewed this chart, BMOD is still attacking - unsuccessfully - the resistance level at $0.19 (orange). As you can see though, in the meantime, the 50-day moving average line (purple) has caught up with the chart's pullback from April. In fact, it was resistance at the 50-day line that caused and sustained the recent weakness.
So this is a bad thing for this small cap? Not necessarily. If Biomoda can clear the $0.19 mark and at the same time get above the 50-day line, there's really nothing to stop it. That's a big if though... nothing you should count on, to be sure. I only bring it up today to illustrate how close (yet so far) we are to the bullishness being unleashed.
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