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5 Stocks Under $10 Set to Soar - 27434 views
WINDERMERE, Fla. (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 hot movers today in the under-$10 category, including Zoom Technologies (ZOOM/a>), up over 29%; Clean Diesel Technologies (CDTI), rising over 18%; K-V Pharmaceuticals (KV.A), jumping over 22%; and Clearwire (CLWR) advancing over 31%. 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 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.
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When I trade under-$10 names, I do it based almost entirely 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.
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 break out is Neurocrine Biosciences (NBIX), which discovers, develops and commercializes drugs for the treatment of neurological and endocrine-related diseases and disorders. This stock hasn’t been a strong performer in 2011, with shares off by around 16% so far.
If you take a look at the chart for Neurocrine, you’ll see that this stock dropped sharply from its July high of $8.44 a share to a recent low of $5.42 a share. Since hitting that low, the stock has now formed a sideways trading pattern between $5.40 on the lower end and $6.30 on the upper end. Whenever a stock forms a basing pattern like this, it’s often a smart idea to buy or short the stock once it moves outside of the pattern.
Shares of Neurocrine are right now starting to break out above the upper end of the sideways pattern. The stock is starting to clear $6.30 today and has also cleared its 50-day moving average of $5.93 a share yesterday. This is a bullish technical development for this stock. Market players should look to buy this breakout since it could mean a large spike is on the cards in the coming days or weeks.
One could be a buyer of this stock off any weakness and simply use a mental stop at around $6.20 to $5.93 share. I would add to any long position once the stock takes out its 200-day moving average of $7.09. Look for strong volume to confirm that this breakout is legit. I would consider volume that’s tracking in close to or well above its three-month average volume of 340,400 shares as bullish.
Another under-$10 stock worth watching is Sinovac Biotech (SVA), a biopharmaceutical company engaged in the research, development, manufacture and commercialization of vaccines against the hepatitis A, hepatitis B and influenza viruses in the People's Republic of China. The bears have hammered this stock so far this year, with shares off by over 45%.
Just today this company was selected by the Beijing CDC as one of the four manufacturers to supply seasonal influenza vaccine to the citizens of Beijing for the fourth time. This news has spiked the stock 4% so far intraday.
If you take a look at the chart for Sinovac Biotech, you’ll notice that this stock formed a perfect double-bottom chart pattern in the last two months at $1.91 to $1.92 a share. Since putting in that bottom, the stock has now rebounded and started to trade back above its 50-day moving average of $2.27 a share, which is bullish. Volume today as the stock moves above the 50-day is tracking in very strong, with over 320,000 shares traded so far, which is well above its three-month average volume of 182,800 shares.
Market players should now watch for a breakout trade if this stock can manage to clear and close above $2.32 and $2.52 a share. A sustained move above those overhead resistance levels should set this stock up for a monster spike higher back towards $3.33 to $3.54 (200-day) a share, or possibly even higher.
One could be a buyer of this stock off any weakness with a mental stop just below $2.20 a share. You could also buy it off strength once it takes out $2.32 to $2.52 a share on heavy volume, with a stop just below the 50-day moving average. If we get that breakout with volume, then this stock has a strong chance to spike big, so keep this name on your trading radar.
Another under-$10 stock that’s worth watching here is Renren (RENN), a social networking Internet platform in China. Short-sellers have cleaned up on this stock so far in 2011 with shares off by over 65%. That said, it might not be a great idea to be short the stock if the near-term trend changes, as the technicals are staring to point towards.
If you take a look at the chart for Renren, you’ll notice that this stock has been in clear downtrend since hitting its July high of $11.99 a share. During the recent slide, the stock has been doing nothing but making lower highs and lower lows, which is bearish. The stock also broke below some big support a few weeks ago at around $6.13 a share. That said, the stock has now rebounded off its recent low of $4.50 a share and its approaching that previous support of $6.13 which is now overhead resistance. Whenever a previous support level becomes new resistance, you want to watch for a sustained move back above that level to trigger the possibility of a new trend higher.
Market-players should watch RENN for a move back above $6.13 to $6.18 a share and then $6.56 (50-day) on strong volume. Look for volume that’s tracking in close to or above its three-month average action of 3.8 million shares. A strong volume move and close above those levels should set this stock up for a monster spike higher towards $8 to $8.50 a share, or possibly even higher.
One could be a buyer of this stock on any weakness and anticipate the breakout, or just wait for the stock to clear $6.18 with volume. I would use a tight mental stop at around $5.20 a share if you buy on weakness. If you buy the breakout stop out around 5.80 a share. Look to add to any long position once this stock takes out its $6.56 (50-day) with volume.
Renren shows up on a recent list of 5 Social Networking Stocks to Watch.
If you’re looking for an under-$10 name in the medical equipment and supplies complex, then take a look at Biolase Technology (BLTI), which designs, manufactures and markets dental, cosmetic and surgical lasers and related products. This stock has been a major market leader in 2011, with shares up by over 110%. In fact, it's on a recent list of the Best-Performing Stocks Under $5 in 2011.
This company reported some very bullish fundamental news today; after they said that in the third quarter, international laser sales exceeded the historically stronger U.S. market laser sales. The stock is spiking higher off this news by around 10% intraday.
If you take a look at the chart for Biolase Technology, you’ll notice that this stock dropped big from its June highs of $6.12 a share to its recent low of $2.14 a share. After hitting that low in August, the stock has been doing nothing but uptrending and making higher lows and mostly higher highs, which is bullish. Now the stock is quickly approaching a major breakout that, if hit, could lead to big spike higher from current levels.
Market-players should watch this stock for a sustained move and close back above 3.85 to $3.93 a share and above $4.01 (200-day) with volume. Watch for volume that’s tracking in close to or above its three-month average action of 440,990 shares. Volume today is already looking very bullish with over 675,000 shares traded so far. If we see those breakouts hit soon, then look for BLTI to jump substantially higher towards $5.50 to $6.12 a share, or possibly even higher.
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 the 50-day moving average of $3.15 a share. Obviously if you’re day trading use a much tighter stop than that. If you buy off strength, jump into this name once those breakout levels I mentioned above are taken out with volume. Use a stop that’s a few percentage points below $4.01 a share.
This is a heavily shorted stock with over 26% of the tradable float currently sold short by the bears. This high short interest is what will fuel a massive short-squeeze if we get the breakout in the coming days or weeks. The high volume move today could be suggesting that some of those bears are already starting to cover some of their positions.
Hollysys Automation Technologies
One final under-$10 stock that is nearing a tradable breakout is Hollysys Automation Technologies (HOLI), which provides automation and control technologies and applications to customers in the industrial, railway, subway and nuclear industries in China and Southeast Asia. This stock has not had a great year, with shares off by over 50%.
If you take a look at the chart for Hollysys Automation, you’ll notice that this stock plunged after hitting its July high of $11.54 a share down to its recent low of $4.54 a share. After hitting that low in late August, the stock has started to rebound and make higher lows and now potentially higher highs, which is bullish. The next higher high won’t trigger until the stock takes out some past overhead resistance at around $7.25 a share. A move above that level would also trigger a big breakout for this to stock.
Market players should be watching this name like hawks in the coming days or weeks for a big volume sustained move back above $7.25 a share. Look for volume that’s tracking in close to or above its three-month average action of 579,700 shares. A high volume move above $7.25 should set this stock up for a sharp rebound that could take shares back towards its 200-day moving average of $10.74, or possibly even higher.
One could be a buyer of this stock on any weakness and anticipate the breakout, or simply wait for the breakout and buy off strength. I would simply use a mental stop just below $6.50 a share if you buy off weakness, and stop out if you buy off strength if it trades back below $7.25 with big volume.
This is another heavily shorted stock with over 25% of the tradable float currently sold short by the bears. I am expecting a monster short-squeeze if this stock takes out $7.25 with volume, so make sure to put this name on your trading radar.
To see more hot under-$10 stocks, including MELA Sciences (MELA), China Medical Technologies (CMED) and Akorn (AKRX), 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.