Tomahawk, WI 06/25/2014 (Basicsmedia) – Traders take the position according to the swings and technical indicators whereas the investors take the positions considering the fundamentals of any company. What the both groups should do in case of Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)?
Entry into the oversold zone
Coming to the technical indicators, traders always refer to the most used technical analysis indicator known as the RSI or the Relative Strength Index. The stocks are measured on a scale of zero to 100. As per the RSI, if a stock goes below 30, it comes in the oversold territory and is set for a bounce back.
So relating the same concept with Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), let us check out what the RSI says? Arena Pharmaceuticals is now into the oversold zone. It is trading at an RSI reading of 29.2. On the other hand, the index S&P 500 ETF (SPY) reading is at 65.1 which is set to enter the overbought zone.
The warning sign
Does it mean that traders should opt for a contra trade? Well, seeing the RSI position of Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), traders would like to jump for buying the stocks as it seems it is done with the selling. But it can prove to be a detrimental step. It might have entered into the oversold territory; still it is better to stay away from it.
The wise people have said that never catch a falling knife in the stock market. Let the first signs of a rebound come in Arena Pharmaceuticals, Inc. (NASDAQ:ARNA). It will then be a clear indication to enter the stock. As of now, the stock is trading around $5.85. It has hit a 52 week high of $8.48 and has a 52 week low of $4.05 per share. The company may come up with its earnings, not before July 2014. So, it is better to take some light positions in the stock till the time it gives a strong reversal of “buy.”