Stock Quotes in this Article: AEZS, AMPE, CIM, SNTA, GURE

WINDERMERE, Fla. (Stockpickr) -- There isn’t a day that goes by on Wall Street when 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 Cyclacel Pharmaceuticals (CYCC), which exploded higher by 27%; Achillion Pharmaceuticals (ACHN), which soared by 26%; Groupon (GRPN), which ripped higher by 13%; and Zogenix (ZGNX), which finished 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.

A low-priced stock that I recently flagged that went on to skyrocket to the upside was BioFuel Energy (BIOF). I highlighted BIOF in my Aug. 2 “5 Stocks Under $10 Ready to Soar Higher” article at around $3.30 a share. I mentioned that BIOF was starting to reverse its downtrend and large upside volume was starting to move into the stock. I also highlighted how BIOF was setting up to trigger a near-term breakout trade above $3.39 to $3.75 a share.

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Guess what happened? Shares of BIOF trended sideways for a few weeks as it continued to make higher lows, and then in early September massive upside volume flowed into the stock as it skyrocketed and triggered that breakout. The stock went on to hit a recent high of $10.75 a share, which is a monster gain from where I initially flagged the stock at around $3.30 a share. Sometimes the breakouts don’t happen right away, but as you can see when they do they can still be extremely powerful.

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.

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.

 

Ampio Pharmaceuticals

An under-$10 stock in the biotechnology and drugs complex that’s close to triggering a major breakout trade is Ampio Pharmaceuticals (AMPE), which is engaged in discovering and developing pharmaceutical drugs and diagnostic products to identify, treat, and prevent a range of human diseases including metabolic disorders, eye disease, kidney disease, acute and chronic inflammation, and male sexual dysfunction. This stock has been acting weak so far in 2012, with shares down by around 14% so far.

If you take a look at the chart for Ampio Pharmaceuticals, you’ll notice that this stock has started to uptrend since mid-August, with shares soaring from $2.55 to its recent high of $3.70 a share. During that uptrend, shares of AMPE have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed AMPE within range of triggering a big near-term breakout trade.

Traders should now look for long-biased trades in AMPE once it breaks out above some near-term overhead resistance at $3.65 a share with high volume. Look for a sustained move or close above $3.65 with volume that hits near or above its three-month average action of 652,983 shares. If that breakout triggers soon, then AMPE will have a great chance of trending up towards its next significant overhead resistance levels at $5.29 to $6.25 a share.

At last check, shares of AMPE have hit an intraday high of $3.70 and volume has already hit over 800,000 shares. If AMPE can hold these gains today, then it could be in the early stages of triggering that breakout. Traders can now look to buy AMPE off weakness, and simply use a stop somewhere below today’s low of 3.40 a share. Traders can also look for long-biased trades as long as AMPE is trending above $3.65 with strong upside volume.

Synta Pharmaceuticals

Another under-$10 stock in the biotechnology and drugs complex that’s setting up to trigger a big breakout trade is Synta Pharmaceuticals (SNTA), which is focused on discovering, developing and commercializing small molecule drugs to severe the medical conditions of the patients with cancer and inflammatory diseases. This stock has been on a tear so far in 2012, with shares up a whopping 75%.

If you take a look at the chart for Synta Pharmaceuticals, you’ll see a stock that has been on fire and uptrending strong for the last three months, with shares soaring from $4.40 to its recent high of $8.45 a share. During that monster uptrend, shares of SNTA have consistently made higher lows and higher highs, which his bullish technical price action. Just recently, SNTA saw heavy upside volume flows as the stock bounced right off its 50-day moving average. That action has now pushed SNTA within range of triggering a major breakout trade.

Market players should now look for long-biased trades in SNTA once it triggers a break out above some near-term overhead resistance levels at $8.45 to $8.50 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 873,200 shares. If that breakout triggers soon, then SNTA will enter new 52-week-high territory and likely trend north of $10 a share.

Traders can look to buy SNTA off any weakness and simply use a stop that sits just below some near-term support at $7.90 to $7.50 a share. One could also buy off strength once SNTA clears those breakout levels with volume, and then simple use a stop that sits just below $7.90 a share.

Aeterna Zentaris

One under-$10 name in the biotechnology and drugs complex that’s trading very close to triggering a major breakout trade is Aeterna Zentaris (AEZS), whose pipeline encompasses compounds at all stages of development, from drug discovery through to marketed products. This stock has been under pressure so far in 2012, with shares down by over 50%.

If you take a look at the chart for AEZS, you’ll notice that this stock has been uptrending strong for the past two months, with shares trending higher from 38 cents to today’s high of 76 cents. During that uptrend, shares of AEZS have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed AEZS within range of triggering a major breakout. If that breakout hits soon, then AEZS will have a great chance of re-filling a previous gap that started above $2 earlier this year.

Traders should now look for long-biased trades in AEZS once it manages to break out above some past overhead resistance at 84 cents per share with high volume. Look for a sustained move or close above 84 cents with volume that registers near or above its three-month average action of 1.2 million shares. If that breakout triggers soon, then AEZS will get into that gap and it could potentially trade all the way back towards $2 a share.

Traders can look to buy AEZS off weakness with a stop that sits just below some major near-term support at 60 cents per share. One could also just buy AEZS once it clears 84 cents per share with volume, and then simply use a stop just below 70 cents.

Gulf Resources

Another under-$10 name that’s trading very close to triggering a near-term breakout trade is Gulf Resources (GURE), which is engaged in the manufacturing and trading of bromine and crude salt and the manufacturing and selling of chemical products used in oil and gas field exploration, oil and gas distribution, oil field drilling, wastewater processing, papermaking chemical agents and inorganic chemicals. This stock has been hammered by the bears so far in 2012, with shares down by over 30%.

If you take a look at the chart for Gulf Resources, you’ll notice that this stock was stuck in a nasty downtrend from May until late July, with shares dropping from over $2 to its recent low of 98 cents per share. During that downtrend, shares of GURE were mostly making lower highs and lower lows, which is bearish technical price action. That said, shares of GURE have now started to stabilize and trend sideways between $1 and $1.33 a share. A move outside of that sideways trading pattern will likely setup the next major trend for GURE.

Market players should look for long-biased trades in GURE if it can manage to trigger a break out above some near-term overhead resistance levels at $1.24 to $1.33 a share with high volume. Look for a sustained move or close above those levels with volume that tracks in close to or near its three-month average action of 98,866 shares. If that breakout triggers soon, then GURE will have a great chance of re-testing or possibly taking out its next major overhead resistance levels at $1.48 to $1.73 a share.

Traders can look to get long GURE off weakness, and simply use a stop that sits just below its 50-day moving average of $1.12 a share. One could also buy GURE off strength once it starts to take out $1.24 to $1.33 a share with high volume, and then simply use a stop just below today’s low of $1.15 a share.

Chimera Investment

One more under-$10 stock that’s trading very close to triggering a major breakout trade is Chimera Investment (CIM), a specialty finance company that invests, either directly or indirectly through its subsidiaries, in residential mortgage-backed securities, residential mortgage loans, commercial mortgage loans, real estate-related securities and various other asset classes. This stock is off to a slow start in 2012, with shares up by around 10%.

If you take a look at the chart for Chimera Investment, you’ll see that this stock has been uptrending pretty strong since early August, with shares marching higher from around $2.30 to its recent high of $2.84 a share. During that uptrend, shares of CIM have been consistently making higher lows and higher highs, which is bullish technical price action. That move has quickly pushing CIM within range of triggering a major breakout trade.

Traders should now look for long-biased trades in CIM once it manages to break out above some key overhead resistance levels at $2.84 to $2.93 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 12,329,300 shares. If that breakout triggers soon, then CIM will setup to re-test or possibly take out its next major overhead resistance levels at $3.20 to $3.45 a share.

One could look to buy CIM off any weakness and simply anticipate that breakout, with a stop that sits just below its 200-day moving average of $2.60 a share. One could also get long CIM off strength once it clears $2.84 to $2.93 a share with volume, and then simply use a stop at around $2.70 to $2.60 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.