Stock Quotes in this Article: DSCO, EDAP, ZGNX, AUMN, NEO

WINDERMERE, Fla. (Stockpickr) -- Every day, certain stocks trading for $10 a share or less 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 in the under-$10 complex from Wednesday, including Real Goods Solar (RSOL), which skyrocketed 64.9%; CounterPath (CPAH), which ripped higher by 19.7%; Recon Technology (RCON), which soared by 17.9%; and Goldfield (GV), which jumped up 11%. You don’t even have to catch the entire move in lower-priced stocks such as these to make outsized returns when trading.

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One low-priced stock that recently skyrocketed higher is medical equipment and supplies player Edap (EDAP), which I highlighted in Jan. 3's “5 Stocks Under $10 Making Big Moves” at around $2.34 a share. I mentioned in that piece that shares of EDAP were exploding higher right off some near-term support at $2.10 with monster upside volume. That move was quickly pushing shares of EDAP within range of triggering a major breakout trade once it took out some overhead resistance levels at $2.63 to $2.85 with high volume. I suggested that traders look for long-biased trades in EDAP as long as it was trending above $2 and then once it triggered that breakout with solid volume.

Guess what happened? Shares of EDAP triggered that breakout a few trading sessions later and the stock hit a high of $3.05 a share. The stock then dipped back down to $2.40 but never violated its major support that sits right around $2 a share. That gave shares of EDAP another chance to set up for another big breakout, and the stock went on to take out $3.05 a share the following day with massive upside volume. Shares of EDAP have now hit a recent high of $3.65 a share, which represents a big gain for anyone who played that breakout trade.

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Low-priced stocks are something that I tweet about on a regular basis. I frequently flag high-probability setups, breakout candidates and low-priced stocks that are acting technically bullish. I like to hunt for low-priced stocks that are showing bullish price and volume trends, since that increases the probability of those stocks heading higher. These setups often produce monster moves higher in very short time frames.

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.

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 several under-$10 stocks that look poised to potentially trade higher from current levels.

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Discovery Laboratories

One under-$10 stock that’s trending very close to trigger a major breakout trade is Discovery Laboratories (DSCO), which is engaged in the development of surfactant replacement therapies to treat respiratory disorders and diseases for which there frequently are few or no approved therapies. This stock has been trending strong for the last three months, with shares up 23%.

This company was hit with some positive news this morning after it announced a secured loan facility with Deerfield Management for up to $30 million in financing. Deerfield is a leading health care investment firm with more than $3.5 billion of assets currently under management.

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If you take a look at the chart for Discovery Laboratories, you’ll notice that this stock has been trading inside of a large consolidation pattern for the last two months, with shares moving between $2 on the downside and $2.45 on the upside. Shares of DSCO are now starting to move back above its 50-day moving average of $2.25 a share and its quickly moving within range of breaking out above its recent sideways trading pattern.

Traders should now look for long-biased trades in DSCO if it manages to break out above some near-term overhead resistance levels at $2.38 to $2.45 a share and then once it clears its 200-day at $2.54 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 226,155 shares. If that breakout triggers soon, then DSCO will set up to re-test or possibly take out its next major overhead resistance levels at $3.04 to $3.10 a share. Any high-volume move above $3.10 will then put $3.30 to $3.50 into range for shares of DSCO.

Traders can look to buy DSCO off any weakness to anticipate that breakout and simply use a stop that sits just below its 50-day at $2.25 or near some recent support at $2.15 a share. One can also buy DSCO off strength once it takes out those breakout levels with volume and then simply use a stop that sits just below its 50-day at $2.25 a share.

The shorts are very involved in shares of DSCO, since its current short interest as a percentage of its float is rather high at 8.3%. Look for the bears to start covering some of their bets if DSCO triggers that breakout soon.

Zogenix

Another under-$10 stock that looks ready to trigger a major breakout trade is Zogenix (ZGNX), which is engaged in the commercializing and developing products for the treatment of central nervous system disorders and pain. This stock has been hammered by the bears during the last three months, with shares down by 42%.

If you take a look at the chart for Zogenix, you’ll notice that this stock has been uptrending strong for the last two months, with shares soaring from its low of $1.11 to its recent high of $1.60 a share. During that uptrend, shares of ZGNX have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of ZGNX within range of triggering a major breakout trade.

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Market players should now look for long-biased trades in ZGNX if it manages to break out above some near-term overhead resistance levels at its 50-day moving average of $1.47 a share and then once it takes out more resistance levels at $1.50 to $1.60 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average volume of 1.4 million shares. If that breakout hits soon, then ZGNX will set up to re-fill some of its previous gap down zone from last December that started around $2.40 a share.

Traders can look to buy ZGNX off any weakness to anticipate that breakout and simply use a stop that sits close to some near-term support at $1.35 to $1.27 a share. One can also buy off strength once ZGNX takes out those breakout levels with volume and then simply use a stop that sits just below its 50-day moving average of $1.47 a share or near $1.35 a share.

This stock has a decent amount of bears involved in the name, since its current short interest as a percentage of its float is rather high at 9.4%. Look for a monster short-squeeze to develop if shares of ZGNX get into that gap down zone with heavy upside volume.

NeoGenomics

One under-$10 name that’s trending very close to triggering a major breakout trade is NeoGenomics (NEO), which operates a network of cancer-focused testing laboratories whose mission is to improve patient care through exceptional genetic and molecular testing services. This stock is off to a hot start in 2013, with shares up sharply by 22%.

This company was hit with some bullish news this morning after it reported a 181% increase in adjusted EBIDA on 38% revenue growth and that the firm achieved profitability in 2012.

If you take a look at the chart for NeoGenomics, you’ll notice that this stock has been uptrending strong for the last month and change, with shares soaring higher from its low of $2.39 to its intraday high of $3.10 a share. During that uptrend, shares of NEO have been consistently making higher lows and higher highs, which is bullish technical price action. This move has now pushed shares of NEO within range of triggering a major breakout trade.

Traders should now look for long-biased trades in NEO if it manages to break out above some key overhead resistance levels at $3.10 to $3.20 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average volume of 105,453 shares. If that breakout triggers soon, then NEO will set up to enter new 52-week-high territory above $3.20 a share, which is bullish technical price action. Some possible upside targets off that breakout are $4 to $5 a share.

Traders can look to buy NEO off any weakness to anticipate that breakout and simply use a stop that sits right around its 50-day moving average of $2.75 a share. One could also buy NEO off strength once it clears those breakout levels with volume and simply use a stop close to $2.95 to $2.85 a share.

Golden Minerals

Another under-$10 name that’s starting to move within range of triggering a near-term breakout trade is Golden Minerals (AUMN), a precious metals producer primarily engaged in the operation and further development of Velardea gold, silver and base metals mines in the State of Durango, Mexico, and silver exploration property in Salta, Argentina. This stock has been hit hard by the sellers so far in 2013, with shares off by 25%.

If you take a look at the chart for Golden Minerals, you’ll see that this stock has been downtrending for the last month, with shares falling from its recent high of $4.87 to its low of $3.18 a share. During that downtrend, shares of AUMN have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of AUMN have started to stabilize and consolidate between $3.18 and $3.45 a share. That sideways price action now has AUMN quickly moving within range of triggering a near-term breakout trade.

Market players should now look for long-biased trades in AUMN if it manages to break out above some near-term overhead resistance levels at $3.45 to $3.57 a share and then once it takes out more resistance at $3.68 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 347,260 shares. If that breakout triggers soon, then AUMN will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day of $4.18 a share or its 200-day at $4.58 a share. Any high-volume move above $4.58 will then put $4.87 to $4.97 into range for shares of AUMN.

Traders can look to buy AUMN off any weakness to anticipate that breakout and simply use a stop that sits right around its near-term support at $3.18 a share. One could also buy AUMN off strength once it takes out those breakout levels with volume and then simply use a stop that sits right below $3.25 a share.

This stock has some serious short-squeeze potential if it breakout triggers soon, since the current short interest as a percentage of its float is pretty high at 12.8%. Look for the bears to cover some of their bets if AUMN can start to spike higher off its recent lows.

BioDelivery Sciences

One more under-$10 stock that’s trending very close to triggering a near-term breakout trade is BioDelivery Sciences (BDSI), a specialty pharmaceutical company that is utilizing licensed and owned proprietary drug delivery technologies to develop and commercialize new formulations of proven therapeutics. This stock hasn’t done much so far in 2013, with shares off by 3.2%.

If you take a look at the chart for BioDelivery Sciences, you’ll notice that this stock has been trending sideways for the last month and change, with shares moving between $3.92 on the downside and $4.94 on the upside. Every time shares of BDSI have traded down towards $4 a share the stock has found buying interest. This stock is now starting to bounce off some near-term support at $4.03 a share and it’s quickly moving within range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in BDSI if it manages to break out above some near-term overhead resistance levels at $4.25 a share to its 50-day moving average at $4.34 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 181,471 shares. If that breakout triggers soon, then BSDI will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $4.66 a share and then at $4.94 to $5.28 a share. Any high-volume move above $5.28 will then put $6 to $6.50 into range for shares of BDSI.

Traders can look to buy BDSI off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $4.03 to $3.92 a share. One could also buy BDSI off strength once it clears those breakout levels with volume and then simply use a stop that sits right below its 50-day at $4.34 a share.

To see more hot under-$10 equities, check out the Stocks Under $10 Setting Up to Explode portfolio on Stockpickr.

-- Written by Roberto Pedone in Winderemere, Fla.

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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 technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including
CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.