Five Star Biotech Stock Watch: Arena Pharmaceuticals

Most biotech stocks have recovered, at least to some extent, during the overall stock market’s most recent run to new highs.

However, some haven’t.

Wall Street has been betting heavily against Arena Pharmaceuticals ARNA. Arena is one of the most heavily shorted biotech stocks out there with the shorts holding a stunning 21 percent of Arena’s float.

However, short interest in Arena has actually been steadily falling. But unfortunately, so has the stock.

Maybe it's time to evaluate the stock’s position to gauge when might be a good time to buy it, or continue shorting it.

The company: Arena Pharmaceuticals, Inc.

Ticker Symbol: ARNA

Sector: Healthcare

Industry: Biotechnology

Arena Pharmaceuticals, a biopharmaceutical company, discovers, develops and commercializes novel drugs that target G protein-coupled receptors.

Related Link: Is Vivus About To Get Squeezed?

The company offers BELVIQ, a drug used to treat chronic weight management in adults. Its products under development include APD811, an agonist of the prostacyclin receptor.

Take a look at the nine-month chart of Arena with added notations:

Arena rallied along with other biotech stocks into the beginning of the year, and then sold off with them as well. However, the stock didn’t sell off as badly as most.

Unfortunately, the stock hasn’t really rallied with most this time around either. Instead, Arena has traded essentially sideways for the last several months while creating support shelf near $5.75.

Long traders could look to enter at this “line in the sand”; while short traders could look to pounce on the stock if it breaks its support.

The stock currently trades at $6.10.

Related Link: Five Star Biotech Stock Watch: Illumina

Arena isn't set to release earnings again until the end of July.

No matter what your strategy, or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key.