Stock Quotes in this Article: ETRM, LEAP, USAT, VG, XOMA

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 Entropic Communications (ENTR), which skyrocketed by 30%; Nanosphere (NSPH), which soared 21%; Orexigen Therapeutics (OREX), which ripped higher by 20%; and Brightpoint (CELL), which finished up 16%. 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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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.

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

Xoma

One under-$10 name that’s trading within range of triggering a major breakout trade is Xoma (XOMA), which discovers and develops antibody-based therapeutics. This stock is off to a monster start in 2012, with shares up over 163%.

If you take a look at the chart for Xoma, you’ll see that this stock has been uptrending strong for the last six months, with shares soaring from a low of $1.11 to a recent high of $3.14 a share. During that sharp move higher, shares of Xoma have mostly made higher lows and higher highs, which is bullish price action.

This stock recently formed a double bottom at around $2.22 to $2.25 a share. After forming that bottom, shares of Xoma have ripped higher back above its 50-day moving average of $2.63, and it’s started to break out above some near-term overhead resistance at $2.73 to $2.79 a share. That move has now pushed Xoma within range of triggering a much bigger breakout trade.

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Market players should now look for long-biased trades in Xoma if it can manage to trigger a major breakout trade above some past overhead resistance levels at $3.14 to $3.60 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 855,923 shares. If we get that action soon, then XOMA will have a great chance of re-filling a previous gap-down from 2011 that could take the stock back towards $5 a share.

If you like the look of Xoma here, then I would look to buy this stock off any weakness and simply use a stop at around its 50-day moving average of $2.63 a share. I would add to any long positions above $3.14 a share, and then add again once it takes out $3.60 a share with heavy volume. One could buy off strength and get long above $3.14 or $3.60 with stops just a few percentage points below those levels.

Keep in mind that Xoma sports a decent short interest, since 7.4% of its tradable float is currently sold short by the bears. If that breakout triggers soon, then we could easily see a large short-squeeze setoff that takes Xoma back into that gap from 2011.

Vonage Holdings

An under-$10 stock in the communications services complex that looks posed to trigger a big-time breakout trade is Vonage Holdings (VG), a provider of communications services connecting people through broadband devices worldwide. This stock is off to a weak start in 2012, with shares off by around 14%.

If you take a look at the chart for Vonage Holdings, you’ll see that this stock has been trending range-bound for the past two months, with shares moving between $1.70 on the downside and $2.10 on the upside. Shares of Vonage have found buying interest repeatedly over the last month near $1.70 to $1.64 a share. This stock then moved back above its 50-day moving average of $1.85 a share, pulled back and re-tested its 50-day, and has now spiked higher again towards some near-term overhead resistance levels. This action has pushed shares of Vonage within range of triggering a near-term breakout trade.

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Traders should now look for long-biased trades in VG if it can manage to trigger a breakout trade above some near-term overhead resistance at $2.36 to $2.55 a share with high volume. Look for volume on a sustained move or close above those levels that hits near or above its three-month average action of 1.8 million shares. If we get that action soon, then VG could easily re-test and possibly take out its February high of $3.16 a share.

If you’re in the bull camp on VG, then one could look to buy this stock off any weakness as long as it’s trending above $2.10 to $2 a share with strong upside volume flows. You could even give this room down to its 50-day moving average at $1.85 a share if you buy off weakness. I would then add above $2.36 to $2.55 if you get into this name off a pullback.

One could also just buy off strength once VG clears $2.36 to $2.55 a share with high-volume. I would simply use a stop at around $2.20 to $2.10 a share if you get long off strength. Keep in mind that a move over $2.36 a share will be very bullish for VG since it will mean that the stock has taken out its 200-day moving average.

Leap Wireless

Another under-$10 name in the communications services complex that’s trading within range of a major breakout trade is Leap Wireless (LEAP), a wireless communications carrier that offers digital wireless services in the U.S. under the Cricket brand. This stock is off to a bearish start in 2012, with shares off by around 33%.

If you take a look at the chart for Leap Wireless, you’ll notice that this stock gapped down big in April from over $8 to under $6.50 a share on monster volume. Following that gap-down, shares of LEAP continued to trend down and eventually hit a low of $4.68 a share. After hitting that low, shares of LEAP have been trading sideways between $4.68 on the downside and $6.43 on the upside. This stock has just moved back above its 50-day moving average of $5.75 a share, and it’s now trading within range of triggering a near-term breakout trade.

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Traders should now look for long-biased trades in LEAP if it can manage to trigger a breakout above some near-term overhead resistance at $6.43 a share with high volume. Look for a sustained move or close above $6.43 a share with volume that registers near or above its three-month average action of 2,321,360 shares. If we get that action soon, then LEAP has a great chance of re-filing that gap-down from April and tagging its next significant overhead resistance levels at $8.10 to $8.75 a share, or possibly even higher towards $10 a share.

If you’re bullish on LEAP, then one could buy off weakness and simply use its 50-day moving average of $5.75 or a touch lower as your stop area. If you buy off weakness, then I would add to the position as soon as $6.43 gets taken with volume. You could also just buy off strength and get long once $6.43 is taken out, and simply use a stop around $6.14 to $6 a share, or just use a stop a few percentage points below $6.43 a share.

This stock is a favorite target of the short-sellers. The current short interest as a percentage of the float for LEAP is a whopping 20.5%. If we get a strong volume move over $6.43 a share, then a monster short-squeeze could easily get triggered that sends shares of LEAP soaring higher.

USA Technologies

Another under-$10 name that looks poised for some decent upside is USA Technologies (USAT), which provides technology-enabled solutions that facilitate electronic payment transactions and value-added services within the unattended point-of-sale market. This stock is off to a hot start in 2012, with shares up over 25% so far.

If you take a look at the chart for USA Technologies, you’ll notice that this stock recently plunged from its 2012 high of $1.98 a share to a recent low of $1.12 a share. Following that plunge, shares of USA Technologies tagged $1.60 a share, and subsequently pulled back again to $1.18 a share. That second pullback has created higher low for this stock, and shares of USA Technologies have just bounced hard right off its 200-day moving average of $1.29 a share. That move has pushed the stock right below its 50-day moving average of $1.42 a share, and it’s moved it within range of triggering a near-term breakout trade.

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Market players should now look for long-biased trades in USAT if it can manage to trigger a breakout above some near-term overhead resistance at $1.42 to $1.47, and then above $1.60 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 310,033 shares. If we get that action soon, then USAT has a great chance of re-testing and possibly taking out its next significant overhead resistance levels at $1.84 to $1.98 a share. In fact, this stock could easily skyrocket towards $2.47 if that $1.98 level gets taken out with volume.

I would look to buy USAT off any weakness and simply use a stop right around its 200-day at $1.29 a share, or even close to that recent low of $1.18 a share. If you buy off weakness, then I would add to the position once $1.47 to $1.60 a share is taken out with volume. You could just buy off strength and get long once $1.47 to $1.60 a share is cleared with volume, and then simply use a stop just below its 50-day moving average of $1.42 a share.

This stock also sports a decent short interest as a percentage of its float at 6.4%. If that breakout triggers soon, then look for the shorts to do some covering that will help to spike this stock significantly higher.

EnterMedics

One more under-$10 name that looks ready to trigger a big-time breakout trade is EnterMedics (ETRM), a development-stage medical device company focused on the design and development of devices that use neuroblocking technology to treat obesity, its associated co-morbidities, and other gastrointestinal disorders. This stock is off to a monster start in 2012, with shares up over 90%.

If you take a look at the chart for EnterMedics, you’ll notice that this stock has been uptrending strong for the last six months, with shares soaring from a low of $1.64 to a recent high of $3.77 a share. During that monster uptrend, shares of EnterMedics have consistently made higher lows and higher highs, which is bullish technical price action. Whenever you see a pattern like this on any stock, it demonstrates that the bulls are buying up every dip and paying up to own shares. This simply means that the demand far outstrips the supply for the stock. Shares of EnterMedics have now just started to bounce off its 50-day moving average of $3.08 a share and we’ve even see a monster upside volume spike in the last few days. That move is quickly pushing ETRM within range of triggering a near-term major breakout trade.

Traders should now look for long-biased trades in ETRM if it can manage to trigger a near-term breakout trade above $3.36 to $3.50, and then its 52-week high of $3.77 a share with high volume. Look for a sustained move or close above those levels on volume that’s near or above its three-month average action of 177,991 shares. If we get that action soon, then ETRM will setup to re-test and possibly take out its next significant overhead resistance level at $4.86 a share. It’s even possibly for this stock to hit $7 a share, if $4.86 gets taken out with volume.

One could be a buyer of ETRM off weakness to anticipate that breakout, and simply use a stop just below its 50-day moving average of $3.08 a share. If you buy off weakness, then I would add to the position once $3.36 to $3.77 is taken out with volume. You could just also buy off strength and get long above $3.50 to $3.77, and simply use a stop just below $3.36 a share. Keep in mind that ETRM will only have a chance of hitting those upside targets if it maintains a trend above $3.77 with strong upside volume flows.

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.