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5 Stocks Under $10 With Big Upside Potential - 36394 views
BALTIMORE (Stockpickr) -- There isn’t a day that goes by on Wall Street when 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 huge moves today in some under-$10 names, including Zoom Technologies (ZOOM), up over 20%; Tegal (TGAL), up over 30%; Renesola (SOL), spiking over 20%; and Multiband (MBND) up over 14%.
You don’t even have to catch the entire move in such lower-priced stocks to make outsized returns when trading.
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I’m not as eager to recommend investing long-term in stocks that trade for 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 trade 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.
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.
With that in mind, here‘s a look at a number of under-$10 stocks that look poised to potentially trade higher from current levels.
One under-$10 name that looks ready to trade much higher is Orexigen Therapeutics (OREX), a biopharmaceutical company focused on the development of pharmaceutical product candidates for the treatment of obesity. The bears have beaten down this stock in 2011, with shares off by over 72%.
If you take a look at the chart for Orexigen Therapeutics, you’ll see that this stock recently gapped up from around $1.40 to $2.68 a share on monster volume. Following that gap up in price, the stock has now dropped back down toward $2.15 a share. What I like about the setup here for OREX, is that when a stocks gaps up like this, sells off and then challenges the gap high again, it often breaks out. If you want to see an example of this, then look at the chart for Transcept Pharmaceuticals (TSPT), which recently put in a similar pattern.
Traders should now watch to see if a breakout of OREX can manage to move above some near-term overhead resistance at $2.25 and then above that gap high of $2.68 a share. A move above these levels with heavy volume should set this stock up for a run back toward its 200-day moving average of $3.20 or possibly even higher. Look for volume that’s tracking in close to or above its three-month average action of 754,900 shares.
One could be a buyer of this stock off any weakness and simply use a mental stop at around $2 a share, or $1.78 a share if you want to give it more room. I would add to any long position once the stock takes out $2.25 and then $2.68 a share with volume. Keep in mind that any future move over $4.15 a share would be very bullish since it would bring a gap down from $10 into play from back in February.
This stock is heavily shorted with over 11% of the tradable short currently sold short by the bears. Any future breakout for OREX should spark a big short-covering rally since the bears are so heavily involved in this stock.
Another under-$10 stock worth watching is Coffee Holding (JVA), an integrated wholesale coffee roaster and dealer in the U.S. This stock has been a major winner so far in 2011, with shares up over 120%. That said, the stock has been a major loser in the last three months, with shares off by over 55%.
If you take a look at the chart for Coffee Holding, you’ll see that this has started to find some big buying support off of a previous support zone at around $6.90 a share. This was the level from which buyers stepped into this stock in a big way back in June, before shares ran up toward $30.94 in just a month and a half. Large traders have once again stepped back into this stock and started to buy at $6.90 a share just a few trading sessions ago. As long as this $6.90 level holds, then this stock should continue to rebound and trade substantially higher.
I would also like to point out that JVA is bouncing off of massively oversold levels. The current relative strength index reading is below 30. That’s an area that I look for strength to move into a stock for confirmation that it could be oversold. Market players should now watch for JVA to trade above $10.02 a share (50-day) on strong volume for the next trigger that it wants to go higher. Look for volume that’s tracking in close to or above its three-month average action of 1.39 million shares.
You could be a buyer of this stock off any weakness with a mental stop just below $6.90 a share, or you could buy it off strength once it takes out the 200-day at $10.02 a share. If we do see a big rebound, then I would target a run back towards $14 to $16 a share, which is very close to its 50-day moving average of $15.92.
This is a heavily shorted stock, with over 26% of the float sold short by the bears. The short-sellers have also been increasing their bets from the last reporting period by 24.9%, or by about 159,900 shares. I think the short-squeeze is already underway, so keep this name on your trading radar for the coming days and weeks.
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An under-$10 computer services player stock that could also be setting up to trade higher is NetQin Mobile (NQ), a software-as-a-service provider of consumer-centric mobile Internet services focusing on security and productivity. This stock has been hammered lower by the bears this year, with shares off by over 50%.
If you take a look at the chart for NetQin, you’ll see that this stock is jumping sharply today by around 8% to around $4.25 a share. The stock recently sold off from its September high of $6.97 a share to a recent low of $3.46 a share. That recent low violated some previous support at around $3.95 a share from back in June. That said, now NQ has traded back above that support zone, which leads me to believe that lots of stops were taken out before large traders moved back into the stock. Stops are often put in near old support levels, so it’s not uncommon to see that price violated first before buyers step back in.
Market-players should watch for a breakout trade here if NQ can manage to move above some overhead resistance at $4.60 a share. A move above that level on strong volume should set this name up for a run back toward its 50-day moving average of $5.8 or possibly $7 a share. Look for volume to be tracking in close to or above its three-month average action of 208,400 shares.
One could be a buyer of this stock on any weakness and anticipate the breakout, or just wait for the breakout and then load up on some shares. I would use a stop just below $4 a share in case the bulls aren’t ready to get long the stock here, or use a much tighter stop obviously if you’re day trading it. It’s worth mentioning that the recent bounce in the stock came off of an RSI reading below 30. The RSI is now 37, so there’s tremendous upside from these oversold levels if buyers do step back in with some volume.
Another under-$10 stock to consider is Ariad Pharmaceuticals (ARIA), a biopharmaceutical company focused on the discovery and development of drugs to provide therapeutic intervention in treating human diseases at the cellular level. This stock has been a market leader in 2011, with shares up over 80%.
If you take a look at the chart for Ariad Pharmaceuticals, you’ll see that this stock has found big buying support at around $7.50 to $7.70 a share a number of times during the past six months. Every time the stock has hit those levels, it’s bounced significantly higher and it has been a great buying opportunity.
Now the stock is approaching some levels that will trigger another big breakout if it can manage to trade above them. The first level to watch is the 50-day moving average at $9.58 a share. The second level is some major overhead resistance at around $10.70 a share. If both of those levels are taken out to the upside in the near future, then I think this stock can make another run at its July highs of $13.50 a share.
Market-players should now watch for a breakout for a move above those levels on heavy volume. Look for volume that’s tracking in close to or above its three-month average action of 3.86 million shares.
One could be a buyer of this stock on any notable weakness in anticipation of the breakout, or you could just wait for the breakout and then get long off strength. If you buy off weakness I would use a stop just below $9 a share. I would look to add to any long position once this stock takes out $10.70 with volume.
This is another heavily shorted stock with over 12% of the float sold short by the bears. This high short interest could fuel a sizable short-squeeze if we can get back above the 50-day and then above $10.70 in the coming days or weeks.
Ariad shows up on a list of Hot Biotech trades for Second-Half 2011.
One final under-$10 stock that is nearing a major breakout is EasyLink Services (ESIC), a global provider of value-added services, which facilitate the electronic exchange of documents and information between enterprises, their trading communities and their customers. This stock is off to a strong start in 2011, with shares up over 19%.
If you take a look at the chart for EasyLink Services, you’ll see that this stock is gapping up today above both its 50-day and 200-day moving averages, which is bullish technical action. The stock is now quickly approaching a big breakout at around $5.12 a share. What I like about the setup here is that ESIC is trading up over 9% today on huge volume. Volume today has already registered over 650,000 shares, which is well above its three-month average action of 216,000 shares. Now all the stock needs is to close above some overhead resistance at $5.12 to trigger a potential bigger move to the upside.
One could be a buyer of this stock on any weakness, or simply wait for the breakout and buy off a strong move and close above $5.12 a share. I would simply use a stop just below the 50-day moving average of $4.63 a share, or much tighter if you’re day trading this for a breakout. If we do get the breakout, then target a run back towards $6 a share or possibly higher.
To see more hot under-$10 stocks, check out the Stocks Under-$10 Setting Up To Trade Higher portfolio on Stockpickr.
-- 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.