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5 Stocks Under $10 Setting Up to Trade Higher - 15281 views
WINDERMERE, Fla. (Stockpickr) -- Stocks trading under $10 a share make huge spikes higher every day. Those traders savvy enough to follow the low-priced names and trade them with discipline and sound risk management are banking ridiculous amounts of money on a regular basis.
Just take a look at some of the huge moves today in some under-$10 names, including Transcept Pharmaceuticals (TSPT) ,up over 90%; SRI/Surgical Express (STRC), up over 25%; Pro-Dex (PDEX), spiking over 18%; and Newcastle Investment (NCT), up over 18%. You don’t even have to catch the entire move in lower-priced stocks such as these to bank solid coin when trading.
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 of picking the long-term winners aren't great. But I absolutely love to trade stocks under $10. I like to view them as a trading vehicle with lots of volatility and lots of upside when played right.
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When I trade under-$10 names, I do it almost entirely based off of their charts and technical analysis. I also like to find under-$10 names with catalysts, but that’s secondary to chart and volume patterns.
A great example of this was my trading call on last Friday with Adventrx Pharmaceuticals (ANX), which I highlighted for a breakout trade above $1.21 a share. This week, the stock took out that level and quickly hit $1.40 a share for a close-to-20% gain in just a few days. You’re just not going to find higher-priced stocks that move that big on such a consistent basis.
With that in mind, heere's a look at a number of under-$10 stocks that look poised to potentially trade higher from current levels.
One stock that could be setting up for a sharp move higher is Primo Water (PRMW), a provider of three- and five-gallon purified bottled water and water dispensers sold through retailers. The stock has been crushed so far in 2011, with shares off by over 50%.
If you take a look at the chart for Primo Water, you’ll see that this stock recently gapped down huge in mid-August from over $13 a share to a recent low of $3.71 a share. Following that gap down, the stock ran up to $6.95 a share and has now started to trade sideways from around $6 to $6.95 a share. This sideways action is now setting the stock up to break out and make a run at filing some of that massive gap down from August.
Traders should now watch for a breakout if PRMW manages to move above some near-term overhead resistance at $6.95 a share. Another key resistance level is $8.23 a share, which is the high for the stock from that big gap-down day. I would watch for a strong volume move above both of those levels that’s tracking in close to or well above its three-month average volume of 557,000 shares. If that happens, then this stock could easily spike up large toward $10 to $12 a share in very short order.
One could be a buyer of this stock once it clears $6.95 a share with volume, or you could buy it off any weakness with a stop just below $5.81 a share. I would add aggressively to any long position if it then takes out $8.23 with strong volume.
This stock has a notable short interest as a percentage of the float of 7.2%. It’s worth pointing out that the bears have also been increasing their bets from the last reporting period by 26.2%, or by about 296,000 shares. If we get a sustained move over $6.95 and $8.23 a share then we could easily get a monster short-squeeze.
Primo Water shows up in the portfolio of Chuck Akre's Akre Capital Management.
Another under-$10 stock worth watching is Avanir Pharmaceuticals (AVNR), a pharmaceutical company focused on developing and commercializing therapeutic products for the treatment of central nervous system disorders. This stock has taken it on the chin so far in 2011, with shares off by over 28%.
If you take a look at the chart for Avainr, you’ll see that this stock has been downtrending since mid-May, when it hit a high of $4.80 a share. Since hitting that high, shares of AVNR have been stuck in a bearish pattern, making lower highs and lower lows. That said, the stock just started to show some signs of changing that pattern. First, the stock has started to make higher lows since bottoming at $2.46 a share in August.
Second, and more important, the stock is very close to triggering a major breakout if it can manage to trade above $3 to $3.02 a share on strong volume. What I like about this potential breakout is that the upside volume has already started to spike as we approach those levels. For example, on Tuesday an up day, volume was just over 6 million shares -- well above the three-month average volume of 2.6 million shares.
Market players should now watch for this stock to take out $3.02 a share on heavy volume. If we see a sustained move above that level with solid volume, then this stock could spike back above $4 a share quickly.
You could either wait to buy the breakout on AVNR, or you could buy it on any weakness with a stop just below $2.66 a share. If you buy the next breakout over $3.02, then I would add aggressively to any long position once it trades above its 50-day moving average of $3.16 a share. Keep in mind that the current basing pattern on this stock is a bullish indicator if AVNR breaks out above that upper range. I say this because when a stock trades out of a base, it usually acts as a launching pad for the shares.
This is an extremely heavily shorted stock, with over 28% of the float sold short by the bears. Any future breakout could easily spark a massive short-covering really that spikes this stock significantly higher from current levels.
SinoCoking Coal and Coke
An under-$10 stock in the energy complex that looks technically ready to surge higher is SinoCoking Coal and Coke (SCOK), which operates as a coal and coke producer in the People's Republic of China. This stock has been beaten down huge so far in 2011, with shares off by over 60%.
If you take a look at the chart for SinoCoking, you’ll see that this stock has been stuck in a nasty downtrend since the stock of the year after it printed a higher of $14.37 a share. During that downtrend, the stock has done nothing but flash bearish technical signals, with shares making lower highs and lower lows repeatedly. That said, the stock just formed a perfect triple-bottom chart pattern at $3.60 a share and it has now started to move above its 50-day moving average of $4.34 a share.
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Market players should watch for a breakout trade if SCOK can manage to trade above some near-term overhead resistance at $5 and then $5.54 a share on big volume. A sustained move above those levels on volume that’s tracking in close to or well above its three-month average action of 96,000 shares would be bullish for the stock.
You could buy this stock on any weakness and anticipate the breakout, or just wait for the breakout and then load up on some shares. I would use a stop just below the 50-day moving average of $4.34 a share in case this stock isn’t ready to move up. If we do get the breakout, then this stock could easily make a monster spike back towards its 200-day moving average of $7.59 a share or possibly higher. I like that volume during the past two trading sessions leading into today was north of 136,000 shares.
Orion Marine Group
If you’re looking for a under-$10 stock in the construction services sector, check out Orion Marine Group (ORN), a marine specialty contractor serving the heavy civil marine infrastructure market that provides a range of marine construction services on, over and under the water along the Gulf Coast and the Atlantic Seaboard and in the Caribbean Basin. The bears have done a number on this stock so far in 2011, with shares off by over 40%.
If you take a look at the chart for Orion Marine Group, you’ll see that this stock has been in a nasty slide lower since it topped out at $10.80 a share back in May. The stock also recently gapped down big in just a few trading sessions from over $8 a share to a recent low of $5.51 a share. That said, since hitting the $5.51 low, the stock has been forming a basing pattern between $5.50 and $6.70 a share. The stock has also started to print higher lows and some higher highs which could be signaling a bullish trend change.
Market players should now watch for a breakout trade to alert with a move above $6.70 a share on strong volume. A sustained move above that level on volume that’s tracking in close to or above 339,000 shares would be bullish for this stock.
You could buy this stock on any notable weakness in anticipation of the breakout, or you could just wait for the breakout and then get long. I would use a stop at around $6 a share if you buy this name on weakness. I would add to any long position if it then trades above its 50-day moving average of $7.33 a share with volume. This stock could run big if the breakout hits, since the next significant overhead resistance levels won’t be reached until $9 to $10 a share.
This stock has a rather high short interest as a percentage of its float, at around 10.4%. If the breakout triggers here for ORN then this stock could see a large short-squeeze that forces the bears to move in and cover and buy back the stock.
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One more under-$10 stock that is already starting to break out is Midway Gold (MDW), an exploration-stage company engaged in the acquisition, exploration and development of gold and silver mineral properties in North America. This stock has been a big winner so far in 2011, with shares up over 244%.
What’s even more interesting about this stock today is that it is trending higher by over 5.8% while gold is down over 40 points. This shows that the stock has some relative strength, but the miners haven’t exactly followed the commodity price in the past, so take that for what it’s worth.
If you take a look at the chart for Midway Gold, you’ll see that this stock is bumping up against a major breakout level at $2.89 a share. In fact, the stock was trading over that level for a bit already today since shares hit a daily high at $2.97 a share. What’s even more bullish is that MDW is already showing volume that’s tracking in strong today. Volume has already registered 1.1 million shares which is well above its three-month average volume of 964,800 shares. If this breakout is the real deal and not a false move, then this stock could be setting up for a large spike higher.
You could buy this stock on any weakness or wait for a close above $2.89 with strong volume. That close might happen today, or it might not, so watch those key levels. If you buy this stock off weakness or off a strong close, then I would use a stop at around $2.82 a share since that was prior resistance. If this breakout materializes, then that price level will become support or won’t be touched again. The stock could even trade down to $2.52 a share and still be in a strong uptrend in the near-term.
I think a 20% or more spike higher is in the cards here if we see a sustained breakout, so keep this name on your radar.
-- 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.