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Ariad Pharmaceuticals (ARIA) Jumps on More Buyout Rumors

By  +Follow March 28, 2014 9:43AM
Tickers Mentioned:

Shares of small-cap pharma Ariad Pharmaceuticals (ARIA) were trading higher on Friday after rumors were started by British paper The Daily Mail that Jazz Pharmaceuticals (JAZZ) was interested in acquiring the company at $20 a share.

Ariad, already a company with a history of high-volume, volatile trading action has already been the subject of buyout rumors sparked by The Daily Mail, previously seeing shares climb in January after the paper reported that pharma giant Eli Lilly (LLY) was considering purchasing the company.

The article, which ran after the closing bell on Thursday, appears to be the impetus behind the nearly 8 percent gain in shares of Ariad on Friday morning. The stock gapped up 5.8 percent to $8.04 a share at the opening bell and gained from there, touching $8.20 a share at its peak.

However, given The Daily Mail’s previous whiff on a purported buyout, it’s clear that traders are taking this most-recent bit of rumor with a significant grain of salt. Given that the rumors cited a share price of $20, a nearly 165 percent premium on the trading price at Thursday’s closing bell, the relatively modest gain can’t be viewed as a ringing endorsement of the potential deal from Wall Street.

It’s also become par for the course for Ariad, a stock that has proven not to be for the faint-hearted investor over the last six months. The company nosedived on October 9 after the FDA placed a clinical hold on trials for ponatinib, its kinase inhibiting leukemia drug Iclusig, ultimately losing more than 75 percent of its value. In the following months, shares continued to swing wildly up and down on extremely heavy volume. However, looking past the interday volatility, Ariad has been making steady gains over the long term, and the FDA ultimately allowed the company to resume marketing and distributing Iclusig with new warnings about blood clots.

Earlier in the month, two trend lines appeared to converge as a falling resistance line that dated back to early September crossed a rising support level that formed in early November after the initial sell-off on Iclusig’s clinical hold. At first, it appeared as though the resistance level would win out, pushing shares below the support line that had largely been moving with the 20-day SMA.

Of course, the stock then began trading at very close to its 50-day SMA and crossed over the falling resistance line less than two weeks later. It’s currently trading in a relatively narrow corridor at close to $8.10 a share, with both the 20-day and 50-day SMAs very close to each other and shares trading very close to those levels.

Looking at a few other technical factors, the MACD line has very recently passed into positive territory, indicating that the current momentum could have real strength. However, the chart appears to show a stock that’s consolidating and waiting to be driven in one direction or the other by an external factor.

The fact that 9-day, 20-day, and 50-day moving averages are so close, and that current share prices remain close to each of those levels, would seem to point towards traders who aren’t seeing a lot of strong momentum, either bullish or bearish. Since falling off a cliff last year, the stock has rallied from a low of $2.15 to levels just over $8 a share. But throughout this rally, the stock pulled back any time its 14-day RSI hit 70, seeming to indicate many of those trading the stock are reticent of technical indicators.

That doesn’t mean there isn’t action, though. With an average daily volume of 14 million shares, about 7.5 percent of its float, over $110 million worth of Ariad stock is changing hands every day. It seems eminently possible that Ariad is poised to breakout in the relatively near future, it’s just unclear which direction that will be in.




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By  +Follow March 28, 2014 9:43AM



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