Warning: This Stock is Likely Headed Lower From Here

A PERFECT CASE OF “BUY THE RUMOR, SELL THE NEWS”

Shares of Arena Pharmaceuticals (ARNA) have tripled over the past month.

The company expects a decision from the Food and Drug Administration next Wednesday on its experimental, prescription diet drug, lorcaserin.

In early May, an FDA Advisory Panel gave the drug a “thumbs up.”

[ad#Google Adsense 336×280-IA]Since then, the stock has skyrocketed. And expectations are high for further gains after final approval is announced.

Maybe too high…

At $10 per share, ARNA commands a market capitalization of $1.8 billion.

The stock trades at 165 times sales and 40 times book value.

There is no price-to-earnings ratio since the company has never posted a profit. And the stock’s chart has gone parabolic.

ARNA should get final FDA approval for lorcaserin next week.

Looking at the chart, though, this setup could turn out to be a perfect case of “buy the rumor, sell the news.”

ARNA may be headed lower from these extended levels.

– Jeff Clark

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