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- 3 Stocks Under $10 to Trade for Breakouts
- 4 Under-$10 Biotech Stocks in Breakout Territory
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5 Stocks Under $10 With Big Upside Potential - views
WINDERMERE, Fla. (Stockpickr) -- There isn’t a day that goes by on Wall Street where some stocks trading near or under $10 a share don’t experience massive spikes higher. Traders savvy enough to follow the low-priced names and trade them with discipline and sound risk management are banking ridiculous coin on a regular basis.
Just take a look at some of the hot movers yesterday in the under-$10 complex, including Sino Clean Energy (SCEI), which jumped over 41%; Acco Brands (ABD), which ripped over 26% higher; Rambus (RMBS), which soared more than 23%; and AirMedia Group (AMCN), which added more than 17%. You don’t even have to catch the entire move in lower-priced stocks such as these to make outsized returns when trading.
I’m not as eager to recommend investing long-term in stocks that trade less than $10 a share because these names can be very speculative, and the odds for picking the long-term winners aren’t great. But I definitely love to trade stocks that are priced below $10. I like to view them as a trading vehicle with lots of volatility and lots of upside when the trade is timed right.
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When I trade under-$10 names, I do it almost entirely based off of the charts and technical analysis. I also like to find under-$10 names with a catalyst, but that’s secondary to the chart and volume patterns.
China Shen Zhou Mining & Resources
One under-$10 stock that’s starting to look interesting is China-based rare earth metals player China Shen Zhou Mining Resources (SHZ). The sellers have crushed this stock in 2011, with shares off by over 70%.
If you take a look at the chart for China Shen Zhou Mining & Resources, you’ll see that this stock has been uptrending since it hit its October low of 97 cents. During that uptrend, the stock has been making higher lows and higher highs, which is bullish price action. Market players should now monitor SHZ for a breakout trade if it can manage to clear some overhead resistance at $2.64 to $2.73 a share on high volume.
The stock managed to move above $2.64 on Thursday and hit an intraday high of $2.73 a share, before pulling back and finishing the day down 4.49% to $2.34. The volume Thursday was high with 962,500 shares traded, whichh is well above the three-month average of 274,300.
This action is telling me the stock wants to pull back more in the short term but that traders should still keep an eye on those breakout levels for when the pullback is over. What’s key here is that the stock doesn’t trade back below the 50-day moving average of $1.88 on high volume off any drop. As long as the 50-day remains intact, then I still like this setup.
You could be a buyer of this stock off any high-volume move and close above $2.64 to 2.73 a share. I would simply use a mental stop a few percentage points below those breakout levels if you buy off of strength. You could also buy this name off weakness as long as $1.88 isn’t violated to the downside. I would target a spike towards $3 to $3.50 (its 200-day) a share, or even higher if a high-volume breakout triggers soon for SHZ.
Another under-$10 name that’s already started to trigger a major breakout is Antares Pharmaceuticals (AIS), a pharmaceutical company that focuses on self-injection pharmaceutical products and technologies and gel-based products. Wall Street bulls seem to love this stock; shares are off to a very hot start in 2011 up over 55%.
If you take a look at the chart for Antares Pharma, you’ll see that this stock took a dive from its July high of $2.65 to a recent low of $1.80 a share. Since printing that low, the stock has rebounded nicely to its current price of $2.68. This stock has now officially triggered a breakout trade since the shares have managed to close above some past overhead resistance at $2.65 on monster volume. Volume on Thursday hit 2 million, and volume on Wednesday (an up day) was 3.34 million, both well above the three-month average action of 699,943 shares.
One could now be a buyer of this stock off any noticeable weakness since shares have already closed in breakout territory. I would use a mental stop just below the 50-day moving average of $2.29 if you’re looking to swing this for a longer-term trade. If you prefer to buy strength, than buy the next pullback and use a mental stop at around $2.50 to $2.40 a share.
It’s worth mentioning that this stock has a decent short interest, with 8.8% of the tradable float sold short by the bears. The short-sellers have also been increasing their bets recently by 14.4%, or by about 1 million shares Now that a high-volume breakout has triggered for AIS, we could easily be in the early innings of a massive short-squeeze.
One name under-$10 name in the biotechnology and drugs complex that’s worth watching here is Idenix Pharmaceuticals (IDIX), which is engaged in the discovery and development of drugs for the treatment of human viral diseases with operations in the U.S. and Europe. This stock has been blazing a trail to the upside in 2011, with shares up over 40%.
If you take a look at the chart for Idenix Pharmaceuticals, you’ll notice that this stock plunged from its July high of $7.03 to a recent low of 4.06 a share. After tagging that low, the stock then ran up to $6.20 and formed a double top. Shares subsequently plunged back down to $4.30. Since hitting $4.30 in October, the stock has started to form a more bullish pattern with shares making higher highs and higher lows. The stock now sets up for a major breakout if it can sustain a move and close above some near-term overhead resistance levels.
Market players should watch for IDIX to clear $7.16 to $7.60 (Thursday’s high) on high volume. Traders should look for volume that’s tracking in close to or above its three-month average action of 646,500 shares. Volume on Thursday hit about 1.2 million shares, with the stock finishing up 2.7% to $7.18. That means the first breakout level has hit and now all this stock needs to do is close over $7.60 with solid volume.
You could be a buyer of this stock off any noticeable weakness and simply use a mental stop near Thursday’s low of $6.96. If you want to buy off strength, then buy some shares once it takes out $7.60 on high volume. A close over $7.60 should set this stock up to trend back towards its next significant resistance level at $10 a share, or possibly even higher.
Another under-$10 name in the biotechnology and drugs complex that looks interesting is Oncothyreon (ONTY), which is focused primarily on the development of therapeutic products for the treatment of cancer. This stock has been on absolute fire this year with shares up by over 120%.
If you take a look at the chart for Oncothyreon, you’ll see that this stock plunged from its July high of $11.59 to a recent low of $5.67. After printing that low, the stock formed a sideways trading pattern between $5.63 and $7.75. That sideways pattern has been in place since early August, but now the stock is close to triggering a breakout trade on a move outside of the sideways pattern. On Wednesday, the stock also soared back above its 50-day moving average of $6.54 on huge volume, which is bullish.
That move was mostly due to a note from Wedbush, which boosted its price target from $15 to $31 a share ahead of the STIMUVAX phase III data set for the first quarter of 2012. What’s impressive about the stock’s performance on Thursday is that the volume continued to expand and the stock added another 5%. Volume was over 2 million on Wednesday and 1.5 million on Thursday, well above its three-month average action of 507,800 shares.
Market players should now watch for a major breakout to trigger for ONTY if it can clear some past overhead resistance at $7.54 to $7.75 on high volume. A high-volume move above those levels could easily set this stock up for a ridiculous spike higher.
This stock is heavily shorted with over 21.2% of the float currently sold short by the bears. (It shows up on an October list of the 10 Most-Shorted Stocks in Biotech.) If we do get that breakout soon, then it’s possible this stock makes a run at its 52-week high of $11.59, or possibly even higher.
You could be a buyer of this stock off any weakness and anticipate the breakout over $7.54 to $7.75 a share. I would simply use a mental stop right around the 50-day moving average of $6.54. You could also just buy off strength once the stock does trigger that breakout and simply use a much tighter mental stop near $7 a share.
Oncothyreon was also one of 13 Biotech Stocks Bought and Sold by Hedge Funds in the most recently reported quarter.
One final under-$10 stock that’s worth tracking at current levels is penny stock CyRx (CYTR), a biopharmaceutical research and development company engaged in the development of high-value human therapeutics, specializing in oncology. This stock has been hammered by the bears in 2011, with shares off by over 60%.
If you take a look at the chart for CytRx, you’ll notice that this stock gapped down back in late July from over 60 cents to a low of 40.5 cents a share. After that gap down which occurred with huge volume, the stock continued to trend lower and recently hit a 52-week low of 27 cents in early October. Since that October low, the stock has started to change its trend to the upside and shares are now making higher lows and higher highs, which is bullish. Shares of CYTR are now approaching a major breakout if it can manage to move above some near-term overhead resistance levels.
Traders should watch CYTR for a breakout if it can take out 42.4 cents to 47 cents on high volume. Look for volume that’s tracking in close to or above its three-month average volume of 784,608 shares. Volume on Thursday registered 850,000, with the stock closing up 1.2%. If we see a sustained move and close above those resistance prices soon, then this stock could easily explode and attempt to refill some of that gap down from July.
Traders should look to buy this stock once it breaks out over 42.4 cents with strong volume. I would simply use a mental stop just under the 50-day moving average of 35 cents. You could also anticipate the breakout and buy off any weakness and again use that same stop near 35 cents. I would add to any long position once this stock takes out 47 cents to 50 cents with volume, since those prior resistance levels are right near the gap down day high price.
-- Written by Roberto Pedone in Winderemere, Fla.
At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.