Ariad Pharmaceuticals (ARIA) Pulls Back on Signs its Overbought

Here’s hoping that Hugh M. Cole doesn’t take this personally.

On the same day that Ariad Pharmaceuticals (ARIA) announced the promotion of Cole to the position of chief business officer, the company’s stock traded down 5.4 percent. The ugly trading day is nothing new for Ariad, one of the most-followed, most-traded small-cap stocks in the health care sector.

There is, however, nothing to indicate that the announcement of Cole’s promotion was driving the day’s sell-off aside from the timing. In fact, it appears as though a key technical indicator led to the sell-off. Based on a recent upswing, the 14-day stochastic RSI for the stock had touched 1.00, a sign that it was overbought. And, for a stock that’s clearly a favorite of day-traders, it’s easy to imagine that a sell signal on a day without strong news could easily be the catalyst that sparks another momentum play.

It’s also notable that this is the second time that a rumored buyout reported by The Guardian drove buying, so another sell-off following the upswing should maybe not come as a big surprise.

Shares actually opened up $0.04 at $8.56 apiece and gained for 15 minutes to reach $8.72 apiece. However, immediately after hitting that early high the sell-off began, taking shares down sharply. The rate of decline slowed as the day wore on but never let up, with shares touching as low as $8.02 each and ultimately closing at $8.06. Volume was just below average, and was at its heaviest during the initial gain and then sharp sell-off.

Looking at the stock’s intraday chart, it’s also clear that this early buying spree pushed the stock’s 14-day RSI above 70 in early trading, another indicator that the stock was overbought that could have sparked traders to begin selling.

Ariad remains an intriguing play for traders and investors alike due to the heavy liquidity in the stock’s trading along with fairly large swings in price despite a market cap hovering around $1.5 billion. On the whole, it appears as though technical indicators seem to sway this stock more than most.