Stock Quotes in this Article: ALC, AVNR, DARA, TEAR, QRM

WINDERMERE, Fla. (Stockpickr) -- There isn’t a day that goes by on Wall Street that certain 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 in the under-$10 complex from Wednesday, including China Precision Steel (CPSL), which skyrocketed higher by 44%; Genetic Technologies (GENE), which soared by 25%; Empire Resorts (NYNY), which trended up 18%; and BSD Medical (BSDM), which closed up 15.3%. 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 I recently flagged that went on to soar higher was Repligen (RGEN). On Aug. 16, I highlighted RGEN at around $4.70 a share. I liked the way that RGEN was coiling up in a tight trading pattern as it moved within range of triggering a near-term breakout trade. I also liked that there was a previous gap that could get filled quickly if RGEN did break out.

Guess what happened? Shares of RGEN did trigger that breakout with decent volume, and the stock went on to hit a recent high of $5.86 a share. Shares of RGEN still look technically bullish and poised for higher prices. The next major breakout will trigger once RGEN takes out $5.86 with volume. If we get that action, this stock could easily tag its April high of $7.29 a share. Some near-term support sits at $5.25 a share.

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.

With that in mind, here’s a look at several under-$10 stocks that look poised to potentially trade higher from current levels.

 

Dara Biosciences

One under-$10 stock in the biotechnology and drugs complex that’s trading very close to triggering a breakout trade is Dara Biosciences (DARA), a specialty pharmaceutical company focused on the development and commercialization of oncology treatment and supportive care pharmaceutical products. This stock has been hit hard by the bears during the last six months, with shares down by over 50%.

If you take a look at the chart for Dara, you’ll notice that this stock has moved into a sideways trading pattern for the last two months, after it came out of a nasty downtrend from $2.77 to its recent low of 62 cents per share. That sideways trading pattern how has DARA trending between 65 cents on the downside and 77 cents on the upside. Shares of DARA have just started to move above 77 cents per share with high volume, and it now looks poised to trigger another major breakout trade.

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Market players should now look for long-biased trades in DARA once it breaks out above some near-term overhead resistance at 85 cents to 96 cents per share and then once it takes out more resistance at 98 cents per share with high volume. Look for a sustained move or close above those levels with volume that tracks in close to or above its three-month average action of 73,579 shares. If that breakout triggers soon, then DARA will have a great chance of re-testing and possibly taking out its next major overhead resistance levels at $1.14 to $1.40 a share. That $1.14 area is DARA’s 200-day moving average, so $1.40 is very achievable once $1.14 is taken out with volume.

Traders can now look to buy DARA off any weakness to anticipate that breakout, and simply use a stop that either sits right below its 50-day moving average of 72 cents per share, or around more support near 68 cents per share. One could also buy off strength once DARA takes out 85 to 98 cents per share with volume, and then simply use a stop at around 77 cents per share.

Quest Rare Minerals

An under-$10 stock in the rare earth metals complex that looks poised for higher prices is Quest Rare Minerals (QRM), an exploration stage company that engages in the identification and discovery of rare earth deposits in Canada. This stock has been hammered by the sellers during the last six months, with shares down by over 50%.

If you take a look at the chart for Quest Rare Minerals, you’ll see that this stock has been downtrending badly for the past six months, with shares plunging from over $3 a share to its recent low of $1.14 a share. During that downtrend, shares of QRM have consistently made lower highs and lower lows, which is bearish technical price action. That said, shares of QRM have recently formed a double bottom chart pattern after the stock found buying interest at around $1.14 to $1.15 a share. If that bottom holds, then QRM could now be setting up to trigger a major breakout trade.

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Market players should now look for long-biased trades in QRM if this stock can manage to break out above some near-term overhead resistance at $1.41 to $1.45 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 121,405 shares. If that breakout triggers soon, then QRM will have a great chance of re-testing and possibly taking out its next significant overhead resistance levels at $1.81 to $2.20 a share. Keep in mind that any move above $1.41 will mean that QRM has recaptured its 50-day moving average, which would be bullish technical price action.

Traders can look to buy QRM off any weakness and simply use a stop that sits just below $1.15 to $1.14 a share. One could also buy off strength once it clears its 50-day at $1.41 with decent volume flows, and then simply use a stop near Wednesday’s low of $1.22 a share.

Assisted Living Concepts

An under-$10 name in the health care facilities complex that’s moving within range of triggering a near-term breakout trade is Assisted Living Concepts (ALC), which, together with its subsidiaries, operates senior living residences in the U.S. This stock has been smashed by the bears so far in 2012, with shares down by over 45%.

If you take a look at the chart for Assisted Living Concepts, you’ll notice that this stock recently plunged huge from$ $14.48 to its 52-week low of $6.93 a share with massive selling volume. Prior to that plunge, shares of ALC were trending sideways but making lower highs and failing to trade back above key moving averages, which was bearish technical price action. That said, ALC has now started to rebound off its lows and its trending very close to triggering a near-term breakout trade.

Traders should now look for long-biased trades in ALC once it manages to break out above some near-term overhead resistance levels at $8 to $8.25 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 263,695 shares. If that breakout triggers soon, then ALC will have a great chance of skyrocketing back towards its 50-day moving average of $11.80 a share or possibly even higher.

The reason I like the upside potential here is that ALC is starting to bounce off extremely oversold levels as it moves into range of triggering a breakout trade. Its current relative strength index reading is 34.29, and it was just trending near 10 when it hit its 52-week low.

Traders can look to buy ALC off weakness with a stop near $7.51 or at around $7 a share. One could also just buy ALC off strength once it takes out $8 a share with high volume, and then simply use a stop just below $7.51 a share.

Avanir Pharmaceuticals

Another under-$10 name in the biotechnology and drugs complex that’s trading very close to triggering a near-term breakout trade is Avanir Pharmaceuticals (AVNR). This is a pharmaceutical company focused on developing and commercializing therapeutic products for the treatment of central nervous system disorders. This stock has is off to a hot start so far in 2012, with shares up over 50%.

If you take a look at the chart for Avanir Pharmaceuticals, you’ll notice that this stock was hammered by the sellers off its July high of $4.05 to its recent low of $2.76 a share. During that sharp move lower, shares of AVNR were consistently making lower highs and lower lows, which is bearish technical price action. That said, during the last month shares of AVNR have formed a triple bottom chart pattern at $2.76, $2.78 and $2.80 a share. This stock is also now setting up to trigger a near-term breakout trade, as it starts to make higher highs.

Market players should look for long-biased trades in AVNR if it can manage to trigger a break out above some near-term overhead resistance levels at $3.14 to $3.20 a share with high volume. Look for volume off a sustained move or close above those levels that tracks in close to or near its three-month average action of 1.2 million shares. If that breakout triggers soon, then AVNR will have a great chance of soaring and possibly re-testing or taking out its July high of $4.05 a share.

Traders can look to get long AVNR off weakness, and simply use a stop near its 200-day moving average of $2.89 a share, or down near $2.80 a share. One could also get long once AVNR clears $3.14 to $3.20 with high volume, and then simply use a stop that sits just below $3 a share. Keep in mind that any high-volume move above $3.20 will mean that AVNR has cleared its 50-day moving average, which is bullish technical price action.

This stock has big potential for a major move if it breaks out soon since it also happens to be a favorite of the short-sellers. The current short interest as a percentage of the float for AVNR is extremely high at 15.6%. If AVNR breaks out soon with volume, then we could easily see a monster short-squeeze develop, so be ready.

TearLab

One more under-$10 stock that’s trading within range of a near-term breakout trade is TearLab (TEAR), an in-vitro diagnostic company engaged in commercializing a proprietary tear testing platform that enables eye care practitioners to test for highly sensitive and specific biomarkers using nanoliters of tear film. This stock has been skyrocketing so far in 2012, with shares up over 210%.

On Wednesday, Canaccord Genuity imitated coverage on this stock with a buy rating and a price target of $6 per share. That upgrade spark a solid rally for TearLab after the stock closed up 8.6% on heavy volume.

If you take a look at the chart for TearLab, you’ll notice that this stock is trending within a range for the past two months, with shares moving between $3.00 on the downside and $3.80 on the upside. Shares of TEAR have just started to recapture its 50-day moving average of $3.35 a share with heavy upside volume, and its quickly moving within range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in TEAR once it manages to break out above some near-term overhead resistance levels at $3.66 to 3.80 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 91,080 shares. If that breakout hits soon, then TEAR will have a great chance of re-testing or possibly taking out its next major overhead resistance levels at $4.35 to $4.88 a share.

Traders can look to buy TEAR off weakness and simply anticipate that breakout, with a stop below its 50-day at $3.35 or down near $3 a share. One could also get long off strength TEAR clears $3.66 to $3.80 with high volume, and then simply use a stock near its 50-day at $3.35 a share.

Keep in mind that TEAR is a favorite target of the shorts, since its current short interest as a percentage of its float is 7.5%. Any breakout over $3.66 to $3.80 should spark a solid short-covering rally that moves TEAR within range of its 52-week at $4.88 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 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.