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5 Stocks Under $10 Setting Up to Soar - 31138 views
WINDERMERE, Fla. (Stockpickr) -- There isn’t a day that goes by on Wall Street where 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 complex, including Inhibitex (INHX), exploding over 100%; MedAssets (MDAS), jumping over 20%; SemiLEDS (LEDS), soaring over 25%; and Analysts International (ANLY), adding over 25%. 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 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 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.
Here‘s a look at a number of under-$10 stocks that look poised to potentially trade higher from current levels.
One under-$10 stock that’s worth keeping an eye on is medical products and device maker for regenerative medicine Cytori Therapeutics (CYTX). This stock has been hammered by the sellers in 2011, with shares off by over 43%.
If you take a look at the chart for Cytori, you’ll notice that this stock has been downtrending from its July high of $5.72 to its recent low of $2.32 a share. After hitting that low, the stock has rebounded and started to print higher lows, which could be signaling a bullish trend change. As long as this stock continues to make higher lows, then traders should watch CYTX for a breakout in the near-term.
Market players should look for a breakout to trigger if CYTX can clear and close above its 50-day moving average of $3.10 a share on solid volume. Look for volume that’s tracking in close to or above its three-month average action of 432,400 shares. If the stock can close over its 50-day convincingly, then watch for a bigger breakout to trigger once it moves above $3.30 to $3.50 with volume.
One could be a buyer of this stock once it clears the 50-day with volume. If we get that move, I would then add to any long position once the stock takes out $3.30 a share with volume. Target a run back towards 4.50 a share, or possibly much higher if the bulls gain full control of this stock.
Keep in mind that this is a heavily shorted name since the current short interest as a percentage of the float for CYTX is 18%. Any near-term breakout could trigger a monster short-squeeze, so make sure to watch for any high volume spikes above that 50-day in the coming days or weeks.
Another under-$10 name that should be on your radar right now is video game maker Majesco Entertainment (COOL). This stock has been a market leader in 2011, with shares up by a whopping 330%.
If you take a look at the chart for Majesco, you’ll notice that this stock sold off hard from its June high of $4.53 to a recent low of $1.61 a share. Since hitting that low, the stock has rebound back to over $3 a share and its now nearing a major breakout. Traders should now be watching this stock for a breakout play if shares can manage to move above some past overhead resistance at $3.47 to $3.57 a share on heavy volume.
Volume on Thursday registered 2.29 million (an up day), which is well above its three-month average action of 1.31 million shares. Market players should now watch for any future breakout that shows a continuation of that high volume pattern. If we do indeed get the high volume breakout, then I think this stock can easily re-test its 52-week high of $4.53 a share.
One could be a buyer of this stock off any significant weakness and simply anticipate the breakout. I would use a mental stop just below some near-term support at $3 a share. A better way to play this is to simply buy the breakout once it takes out $3.47 to $3.57 with strong volume.
The current short interest as a percentage of the float for COOL is 5.5%. If we do see that breakout in the coming days or weeks, then look for a solid short-covering rally to materialize since the short interest is decent here.
An name under-$10 name in the communications services complex that’s worth watching is Paetec (PAET). This stock has been off to a hot start this year, with shares up over 40% so far. This company just reported third-quarter earnings that showed a 31% jump in revenue growth year over year to $536.3 million. Despite those strong results, the stock is trading off by 7% at last check.
If you take a look at the chart for Paetec, you’ll notice that this stock has been in a strong uptrend for the past six months, where shares have been making mostly higher highs and higher lows. Before today’s down move, the stock was approaching a major breakout above $5.71 to $5.84 a share. That said, the stock has now dropped back below its 50-day moving average of $5.50 a share. Shares of Paetec are now approaching some key support zones at $5.25 and then near $5 a share, if that $5.25 support fails to hold.
I would suggest putting this stock on your trading radar to see if those support zones hold, or to monitor for a high volume move back above the 50-day moving average. Paetec's three-month average volume is 2.29 million shares, so any move above the 50-day with volume near or above that level is what you should watch for.
If the stock can find solid buying support near $5.25 or $5 a share, then one could be a buyer with a tight mental stop just below either entry. If you like to play strength, then I would wait until this stock makes a high volume move back above its 50-day. I would add to any long position if you see this stock break out over $5.84 with heavy volume.
If you’re looking for an under-$10 name in the energy complex, then take a look at energy services and smart grid solutions provider PowerSecure International (POWR). This stock has been off to a slow start in 2011, with shares off by over 25%. That said, the stock is soaring by over 20% today after the company reported strong third quarter results. Roth Capital also upgraded the stock today with a $6.50 price target due to those strong results and backlog.
If you take a look at the chart for PowerSecure International, you’ll notice that this stock is just starting to break out today above some past overhead resistance at $4.60 and now $5.40 a share on heavy volume. Volume today is easily going to register above its three-month average action of 138,200 shares, since at last check it’s already over 126,600 shares.
A sustained move and close above $5.40 should set this stock up for a monster run back towards the next significant overhead resistance levels at $7.50 a share, or possibly even higher.
One could be a buyer of this stock off any weakness and simply use a mental stop that’s just a few percentage points below $5.40 a share. I would then simply stop out of the trade if shares move below the 50-day moving average by a few percentage points. I would add any long position once the stock takes out its 200-day moving average of $6.39 on heavy volume.
The current short interest as a percentage of the float for POWR is rather high at 9.5%. That’s a pretty high short interest, so monitor this name for continued upside in the coming days and weeks.
PowerSecure is one of TheSTreet Ratings' top-rated scientific instrument stocks.
Applied Micro Circuits
Another under-$10 stock that’s setting up for a big breakout and potential move higher is semiconductor maker Applied Micro Circuits (AMCC). The sellers have been in control of this stock in 2011, and shares are off by over 30%. That said, the stock could quickly be changing its trend back towards the favor of the bulls if shares can break out in the near future.
If you take a look at the chart for Applied Micro Circuits, you’ll notice that this stock had been basing and trading sideways since August between $4.70 and over $6 a share. Every time this stock traded down to near $5 or just under $5, the buyers swarmed in and supported the share price. Now the buyers have started to push this stock into breakout territory since its well above $6 and pushing towards its next significant overhead resistance level at $7.16 a share.
One could be a buyer of this stock once it sustains a move and close above $7.16 a share on strong volume. Look for volume that’s tracking in close to or above its three-month average action of 1.01 million shares. Volume on Thursday (an up day) tagged 3.04 million shares, so look for this strong volume action to continue if AMCC takes out $7.16. Target a run back towards the 200-day moving average of $8.34, or potentially much higher if we get the breakout.
The current short interest as a percentage of the float for AMCC is notable at 6.5%. It’s worth pointing out that the bears have increased their bets from the last reporting period by 3.3%, or by about 133,100 shares. If the breakout triggers, then we could see the bears continue to cover some of their bets and push this stock much higher.
-- 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.