Stock Quotes in this Article: ONTY, SGMO, SKH, XOMA, MEIP

WINDERMERE, Fla. (Stockpickr) -- Every day, the market sees 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 Zogenix (ZGNX), which soared by 40%; First Security Group (FSGI), which ripped higher by 27.9%; Old Second Bancorp (OSBC), which jumped 24.5%; and Meru Networks (MERU), which advanced by 19.7%. 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 exploded higher was nanomedicine player Arrowhead Research (ARWR), which I highlighted in Feb. 20's “4 Biotech Stocks Under $10 Moving Higher” at around $2.04 a share. I mentioned in that piece that shares of ARWR were starting to rebound off its recent low of $1.75 and were quickly moving within range of triggering major breakout trade above some near-term overhead resistance levels at $2.18 to $2.24 a share.

Guess what happened? Shares of ARWR never looked back after I wrote that piece and the stock managed to close above its 50-day moving average on Feb. 25. The following day, shares of ARWR triggered that breakout I was waiting for with heavy upside volume. The stock hit an intraday high of $2.70 a share, which represents a massive gain for anyone who bought the stock in anticipation of the move. This was a beautiful technical setup for ARWR, since the stock was uptrending strong prior to its breakout and we had huge upside volume of 1.4 million shares once it triggered.

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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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Oncothyreon

One under-$10 stock that’s trending very close to trigger a major breakout trade is Oncothyreon (ONTY), a clinical-stage biopharmaceutical company focused on the development of therapeutic products for the treatment of cancer. This stock has been blasted by the sellers during the last three months, with shares off by 56%.

If you take a look at the chart for Oncothyreon, you’ll notice that this stock has been trading in a tight consolidation pattern for the last month, with shares moving between $1.80 on the downside and $2.15 a share on the upside. This consolidation pattern has come after shares of ONTY gapped down big last December from over $4.50 a share to its recent low of $1.71 a share. Shares of ONTY are now starting to bounce off its recent $1.80 low, and it’s quickly moving within range of triggering a breakout trade above the upper-end of its sideways chart pattern.

Traders should now look for long-biased trades in ONTY if it manages to break out above some near-term overhead resistance levels at $2.15 to $2.35 a share and then once it clears more resistance at around $2.40 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 1.61 million shares. If that breakout triggers soon, then ONTY will set up to re-fill some of its previous gap down zone from last December that started near $4.50 a share. Some possible upside targets if ONTY gets into that gap with volume are $3 to $4 a share.

Traders can look to buy ONTY off any weakness to anticipate that breakout and simply use a stop that sits just below some near-term support at $1.80 a share. One can also buy ONTY off strength once it takes out those breakout levels with volume and then simply use a stop that sits just below its 50-day moving average of $2.13 a share.

This stock has big time short-squeeze potential if that breakout triggers soon, since the current short interest as a percentage of the float for ONTY is pretty high at 13.5%. Make sure to put this name on your breakout trading radar for the coming weeks.

Sangamo Biosciences

Another under-$10 stock that looks ready to trigger a near-term breakout trade is Sangamo Biosciences (SGMO), a clinical stage biopharmaceutical company engaged in the research, development and commercialization of engineered DNA-binding proteins for the development of novel therapeutic strategies for unmet medical needs. This stock has been super hot in 2013, with shares trending up 65%.

If you take a look at the chart for Sangamo Biosciences, you’ll notice that this stock has been uptrending for the last month, with shares moving higher from its low of $7.92 a share to its intraday high of $10.04 a share. During that move, shares of SGMO have been making mostly higher lows and higher highs, which is bullish technical price action. That spike has now pushed shares of SGMO within range of triggering a near-term breakout trade above its 52-week high of $10.05 a share.

Market players should now look for long-biased trades in SGMO if it manages to break out above its 52-week high of $10.05 a share with high volume. Look for a sustained move or close above $10.05 a share with volume that registers near or above its three-month average volume of 523,340 shares. If that breakout hits soon, then SGMO will set up to enter new 52-week high territory, which is bullish technical price action. Some possible upside targets off that move are $12 to $15 a share.

Traders can look to buy SGMO off any weakness to anticipate that breakout and simply use a stop that sits close to some key near-term support at $8.58 a share. One can also buy off strength once SGMO takes out $10.05 a share with volume and then simply use a stop around $9.50 to $9.30 a share.

This is another short-squeeze candidate, since the current short interest as a percentage of the float of SGMO is rather high at 14%. If that breakout triggers soon with volume, then the shorts could quickly see themselves in a dangerous position, so be ready.

MEI Pharma

Another under-$10 name that’s trending very close to triggering a major breakout trade is MEI Pharma (MEIP), which is developing cancer therapeutics based on the central design of naturally occurring compounds called isoflavones. This stock has been on fire during the last six months, with shares up a whopping 227%.

If you take a look at the chart for MEI Pharma, you’ll notice that this stock formed a double bottom at around $4.36 to $4.50 a share earlier this month. After marking that bottom, shares of MEIP have soared and moved back above its 50-day moving average with heavy upside volume flows. That move has now pushed shares of MEIP within range of triggering a major breakout trade.

Traders should now look for long-biased trades in MEIP if it manages to break out above some key overhead resistance at $7.70 a share with high volume. Look for a sustained move or close above $7.70 a share with volume that registers near or above its three-month average volume of 72,208 shares. If that breakout triggers soon, then MEIP will set up to re-test or possibly take out its next major overhead resistance levels at $10.08 to around $13 a share. Any high-volume move above $13.20 would then send shares of MEIP into new 52-week high territory, which is bullish technical price action.

Traders can look to buy MEIP off any weakness to anticipate that breakout and simply use a stop that sits right below its 50-day moving average of $6.55 a share or around $6 a share. One could also buy MEIP off strength once it clears $7.70 a share with volume and simply use a stop that sits right around its 50-day moving average of $6.55 a share.

This stock has very explosive upside potential if that breakout triggers soon, since its tradable float is just 1.47 million shares. A low-float name like this can move to the upside very quickly if buyers move into the stock with force, since the supply of actual stock to trade is so small.

Xoma

Another under-$10 name that’s starting to trend into range of triggering a near-term breakout trade is Xoma (XOMA), which is engaged in the discovery, development and manufacture of therapeutic antibodies and other agents designed to treat inflammatory, autoimmune, infectious and oncological diseases. This stock hasn’t done much so far in 2013, with shares trading virtually flat.

If you take a look at the chart for XOMA, you’ll notice that this stock has been trading in a tight consolidation pattern for the last two months, with shares moving between $2.37 on the downside and $3 a share on the upside. Shares of XOMA are just starting to push back above its 50-day moving average of $2.68 a share, and it's quickly moving within range of breaking out above a key downtrend line.

Market players should now look for long-biased trades in XOMA if it manages to break out above some near-term overhead resistance levels at $2.83 to $3 a share and then once it takes out more resistance at $3.10 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 549,387 shares. If that breakout triggers soon, then XOMA will set up to re-test or possibly take out its next major overhead resistance levels at $3.44 to $4 a share.

Traders can look to buy XOMA off any weakness to anticipate that breakout and simply use a stop that sits right around some near-term support levels at $2.46 to $2.37 a share. One could also buy XOMA off strength once it takes out those breakout levels with volume and then simply use a stop that sits just below its 50-day moving average of $2.68 a share. I would add to either position once this stock clears $3 to $3.10 with strong volume.

Skilled Healthcare Group

One more under-$10 name that’s trending very close to triggering a near-term breakout trade is Skilled Healthcare Group (SKH), a provider of integrated long-term health care services through its skilled nursing companies and rehabilitation therapy business. This stock has been uptrending modestly during the last six months, with shares up 7.6%.

This company recently reached a deal with California’s Attorney General regarding alleged patient mistreatment at a former company facility. Oppenheimer thinks the deal will remove an overhang on the stock and pave the way for the company to receive HUD financing.

If you take a look at the chart for Skilled Healthcare Group, you’ll notice that this stock has been downtrending badly for the last four months, with shares dropping from its high of $8.01 a share to its recent low of $4.99 a share. During that downtrend, shares of SKH were consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of SKH have recently started to rebound off that $4.99 low and its quickly moving within range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in SKH if it manages to break out above its 200-day moving average of $6.07 a share and then once it takes out more resistance levels at $6.27 to $6.70 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 187,279 shares. If that breakout triggers soon, then SKH will set up to re-test or possibly take out its next major overhead resistance levels at $7.11 to $8.01 a share. Any high-volume move above $8.01 would then put $8.41 to $9 a share into range for shares of SKH.

Traders can look to buy SKH off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support at $5.72 a share. One could also buy SKH off strength once it clears those breakout levels with volume and then simply use a stop that sits just below its 200-day moving average of $6.07 a share. I would add to either position if SKH takes out $6.94 to $7.11 a share with heavy upside 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.

RELATED LINKS:

>>5 Hated Stocks That Could Squeeze Higher in March
>>4 Loser Stocks Poised for a Comeback in 2013

>>3 Biotech Stocks Rising on Big Volume

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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.