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Arrowhead Research Corp.

03/06/14 04:12:41 PM
by Koos van der Merwe

Here's another health stock to look at.

Security:   ARWR
Position:   Sell

On March 3, 2014, Arrowhead Research Corp. (ARWR) received regulatory approval to begin Phase 2a trial of chronic Hepatitis B Candidate ARC-520. ARWR is a biopharmaceutical company that is leveraging its proprietary drug delivery technologies to develop targeted drugs based on the RNA interference mechanism that efficiently silences disease-causing genes. This is risky because the company may spend billions of dollars on research and development and its final product may be rejected by the U.S. Food and Drug Administration (FDA) as non-effective. That is the risk that any company that develops new drugs takes. Their second risk is that once their patents expire, generic drugs step in. So, should you invest in pharmaceutical research companies?

Figure 1. Monthly chart suggesting a correction.
Graphic provided by: AdvancedGET.
On the monthly chart of ARWR in Figure 1 you see how the price rose from a low of 41 cents in August 2009 to its present price of $26.69. Note how in April 2012 the price fell from $7.40 to $1.86 to fill the gap. Also note the RSI which is at extreme overbought levels suggesting that a sell signal could be in the cards.

Figure 2. Daily chart showing the rise on a gap.
Graphic provided by: AdvancedGET.
The chart in Figure 2 is a daily chart with an Elliott Wave count suggesting that the price is topping out in a Wave 3 with a Wave 4 to follow. The price jumped on March 5th to a new high but on a gap, which means that the price should fall to about $22.92 to fill that gap. Once again note the RSI indicator, which although it gave a sell signal on February 27th, has bounced back. Should the RSI give another sell signal, this will be a divergence sell signal, that is where the stock price rises to new high, but the RSI indicator does not exceed the previous high. This is a strong SELL signal. Do note the volume which has been rising, along with the price, a strong positive signal. Finally, do note the JM Internal Band Indicator which has not given a sell signal on February 28th even though the price fell. The JM Internal Band is a simple 15 period moving average offset by 2% positive and 2% negative.

I would not be a buyer of ARWR at the present price, preferring to wait for a correction to fill the gap. The share is, however, on my watch list.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

Address: 3256 West 24th Ave
Vancouver, BC
Phone # for sales: 6042634214
E-mail address:

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