Stock Quotes in this Article: ACAD, ACI, ARNA, KGN, ZNGA

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 Novacopper (NCQ), which skyrocketed higher by 33%; Key Tronic (KTCC), which surged higher by 24%; Telik (TELK), which moved up 14%; and Synacor (SYNC), which closed up 10.3%. You don’t even have to catch the entire move in lower-priced stocks such as these to make outsized returns when trading.

One low-priced stock that I recently flagged that went on to soar higher was Catalyst Pharmaceutical Partners (CPRX). On Friday, I highlighted CPRX in “5 Stocks Poised for Breakouts” at around $1.40 a share. I liked the way that CPRX was uptrending, and I saw the potential for a big breakout. I suggested buying the stock off weakness and anticipating that move.

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Guess what happened? Shares of CPRX did trigger that breakout with monster volume, and the stock ripped higher from Friday’s low of $1.36 to yesterday’s high of $1.79 a share. Shares of CPRX still look technically bullish and poised for higher prices. This stock is now trading within range of its 52-week high of $1.90 a share. If we see CPRX blast above $1.90 soon, then it has a great chance of re-testing and possibly taking out its 2011 high of $2.25 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 trade higher from current levels.

 

 

Zynga

One under-$10 stock that’s trading within range of triggering a near-term breakout trade is Zynga (ZNGA), which develops, markets and operates online social games as live services played over the Internet and on social networking sites and mobile platforms. This stock has been destroyed by the sellers so far in 2012, with shares down a whopping 63%.

If you take a look at the chart for Zynga, you’ll see that this stock has been stuck in a nasty downtrend for the last six months, with shares plunging from over $14.48 to its recent low of $2.66 a share. During that downtrend, shares of Zynga consistently made lower highs and lower lows, which is bearish technical price action. That said, for the past few weeks ZNGA has held that $2.66 low and it’s started trending sideways from $3.12 to $2.80 a share. That sideways trading pattern is now setting up ZNGA for a possible move into its gap down zone from late July that started near $5 a share.

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Traders should now look for long-biased trades in ZNGA as long as its trending above Wednesday’s low of $3.05 a share, and above its gap down day high of $3.22 a share with strong upside volume flows. I would consider any upside volume day that registers near or above its three-month average action of 23.4 million shares. Volume on Wednesday registered a whopping 39.53 million shares, and the stock closed at $3.26 a share. This means that ZNGA has already started to move into the gap, so an explosive move higher could be in the cards. If ZNGA can hold its trend above $3.05 to $3.22 a share, then this stock could easily spike back towards $5 to $6 a share soon.

Traders can now look to buy ZNGA off any weakness as long as it holds $3.05 a share, or you could give it more room to around $2.80 a share. One could also buy off strength once we get a weekly close above $3.22 a share. Either way, any high-volume move into that previous gap will raise the probability for a large spike higher.

Arena Pharmaceuticals

An under-$10 stock in the biotechnology and drugs complex that looks ready to soar higher is Arena Pharmaceuticals (ARNA), which is focused on discovering, developing and commercializing oral drugs that target G protein-coupled receptors, in four therapeutic areas: cardiovascular, central nervous system, inflammatory and metabolic diseases. This stock has been on fire so far in 2012, with shares up over 357%.

If you take a look at the chart for Arena Pharmaceuticals, you’ll notice that this stock sold off sharply from its June high of $13.50 a share to its recent low of $6.95 a share. During that downtrend, shares of ARNA were mostly making lower highs and lower lows, which is bearish technical price action. That said, during the last month shares of ARNA have stabilized and found buying interest near $7 a share. The stock has also started to make higher lows, and it’s now setting up to triggering a near-term breakout trade.

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Traders should now look for long-biased trades in ARNA if this stock can manage to break out above some near-term overhead resistance at $8.86 a share, and then above its 50-day moving average of $9.29 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 22.6 million shares. If that breakout triggers soon, then look for ARNA to setup for a run back towards it 52-week high of $13.50 a share, or at least towards $10.35 to $12 a share.

Traders can look to buy ARNA off weakness and simply use a stop that sits around $8 to $7.69 a share. If we don’t see much weakness in the short-term, then look to get long around current levels and simply anticipate that breakout. If you get long near current levels, then use a stop at around $8 a share.

Keep in mind that this is a heavily-shorted stock, since the current short interest as a percentage of the float for ARNA is 21.3%. If that breakout triggers soon, then ARNA could see the shorts cover and lock in some of their gains off the recent drop from $13.50 a share.

Acadia Pharmaceuticals

Another under-$10 name in the biotechnology and drugs complex that’s trading within range of triggering a major breakout trade is Acadia Pharmaceuticals (ACAD), which is focused on small molecule drugs that address unmet medical needs in neurological and related central nervous system disorders. This stock is off to a monster start in 2012, with shares up over 60% so far.

This company has a catalyst on the horizon for its drug Pimavanserin, which is a treatment for patients suffering psychosis due to Parkinson’s disease. Top-line results for this phase III study are expected to be released in the third quarter of 2012. As of early August, the trail is 95% enrolled, and management recently said it expects to offer data in late November to early December of this year.

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If you take a look at the chart for Acadia Pharmaceuticals, you’ll see that this stock has been uptrending strong for the last three months, with shares rising from a low of $1.29 to its recent high of $1.96 a share. During that uptrend, shares of Acadia Pharmaceuticals have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed ACAD within range of triggering a major breakout trade.

Traders should now look for long-biased trades in ACAD once it manages to break out above some near-term overhead resistance levels at $1.85 to $1.96 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 374,948 shares. If that breakout triggers soon, then look for ACAD to re-test and possibly take out its next significant overhead resistance levels at $2.30 to $3.30 a share. Any high-volume move above $3.30 will setup ACAD to trend north of $5 a share, which happens to be where it traded back in 2009.

Traders can look to buy ACAD off any weakness, and simply use a stop at around its 50-day moving average of $1.63 or even down towards its 200-day moving average of $1.52 a share, depending on where you enter. One can also get long once $1.85 to $1.96 a share are taken out with high volume, and then use a stop at around $1.70 to $1.63 a share. I would add to either position once $2.30 gets taken out with volume, and then once $3.30 a share gets smashed with volume.

Arch Coal

One final under-$10 name in the coal complex that’s trading within range of a major breakout trade is Arch Coal (ACI). This company is a coal producer that sells its coal to power plants, steel mills and industrial facilities. This stock has been hammered by the bears so far in 2012, with shares down a whopping 50%.

If you take a look at the chart for Arch Coal, you’ll notice that this stock recently came out of its downtrend that took shares lower from $14 to $5.16 a share. That move out of its downtrend, has now seen shares of Arch Coal trend sideways between $6.42 and $7.78 a share. A high-volume move outside of that sideways trading pattern soon should setup the next major trend for ACI. Since this stock is trending so close to the upper-end of that range, the probably is high that an explosive move higher is setting up for ACI.

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Traders should now look for long-biased trades in ACI once it manages to trigger a breakout trade above some near-term overhead resistance levels at $7.68 to $7.76 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 14 million shares. If that breakout triggers soon, then ACI has a great chance of re-testing or possibly taking out its next major overhead resistance levels at $8.45 to $10.71 a share. In fact, I think ACI will tag its 200-day moving average of $10.70 a share if that breakout triggers soon.

Traders can now look to buy ACI off weakness and simply anticipate that breakout. I would look to use a stop that sits around $6.56 to $6.42 a share if you get long of weakness. One could also get long off strength once ACI clears those breakout levels with volume, and simply use a stop at around $7 to $6.80 a share.

Keep in mind that ACI is a heavily-shorted stock, since its current short interest as a percentage of its float is 22.5%. This stock has big short-squeeze potential if that breakout triggers soon, so make sure to have this on your breakout trading radar.

Keegan Resources

An under-$10 name in the gold and silver complex that looks poised for higher prices is Keegan Resources (KGN), which is focused on advancing its principal property, the Esaase Gold Project, to commercial production. In addition to its principal project, the company holds a portfolio of other Ghanaian gold concessions in various stages of exploration. This stock has is off to a slow start in 2012, with shares off by around 11%.

If you take a look at the chart for Keegan Resources, you’ll notice that this stock recently found buying interest at around $2.80 to $2.70 a share, and the upside volume off that buying has been expanding dramatically. Following those buyers stepping into the stock, KGN has now started to push back above its 50-day moving average of $3.03 a share with decent volume. That move has also pushed KGN within range of triggering a near-term breakout trade.

Traders should look for long-biased trades in KGN if it can manage to trigger a break out above some near-term overhead resistance levels at $3.44 to $3.69 a share, and then above $3.93 a share with high volume. Look for volume off a sustained move or close above those levels that hits near or above its three-month average action of 216,902 shares. If that breakout triggers soon, then KGN will have a great chance of re-testing and possibly taking out its next major overhead resistance levels at $4.76 to $5.45 a share.

Keep in mind that any high-volume move or close for KGN above its 200-day moving average at $3.69 a share, should be consider bullish technical price action. Basically, this would increase the probability for higher prices, and for those breakout levels triggering soon.

Traders can look to get long KGN off weakness, and simply use a stop near its 50-day moving average of $3.03 a share, or down near $2.87 a share. One could also get long once it takes out $3.44 to $3.69 a share with high volume, and then simply use a stop at around $3.20 a share. I would look to add to either position once KGN clears $3.93 a share with strong volume.

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.