Stock Quotes in this Article: BSPM, DEPO, MITK, ARC, MDGN

 WINDERMERE, Fla. (Stockpickr) -- Every day, 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 Chelsea Therapeutics (CHTP), which skyrocketed 153%; Novogen (NVGN), which soared by 25.9%; Cornerstone Therapeutics (CRTX), which exploded 24.5%; and China Housing & Land Development (CHLN), which ripped higher by 24.8%. 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 chemical manufacturing player BioFuel Energy (BIOF), which I highlighted in Feb. 8's “5 Stocks Showing Major Breakouts” at around $4.74 a share. I mentioned in that piece that shares of BIOF had been downtrending badly for the last four months. Despite that downtrend, shares of BIOF were just starting to bounce off some near-term support levels at $4 to $4.30 a share, and it was quickly moving within range of triggering a major breakout trade above some near-term overhead resistance levels at $5.21 to $5.66 a share.

Guess what happened? Shares of BIOF started to trigger that breakout trade on Feb. 14 with above-average volume after the stock closed at $5.50 a share. The following day, BIOF exploded to the upside with huge volume and closed at $6.83 a share. The stock went on to hit a near-term high of $7.25 on Feb. 19, which represents a massive gain for anyone who played that breakout. The best part about this BIOF trade was that market players had plenty of conformation that a big move was possible because heavy upside volume was flowing into the stock as it took out those key resistance levels.

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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.

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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.

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ARC Document Solutions

One under-$10 stock that’s trending very close to trigger a major breakout trade is ARC Document Solutions (ARC), which provides highly specialized document management services, document distribution and logistics, and print-on-demand services. This stock has been hammered by the sellers during the last six months, with shares off by 43%.

If you take a look at the chart for ARC Document Solutions, you’ll notice that this stock is just starting to move back above its 50-day moving average of $2.45 a share with decent volume. This move is quickly pushing shares of ARC within range of triggering a major breakout trade. That breakout would send shares of ARC above its recent consolidation pattern, which has the stock trending between $2.27 on the downside and $2.81 on the upside.

Traders should now look for long-biased trades in ARC if it manages to break out above some near-term overhead resistance levels at $2.55 to $2.65 a share and then once it clears more resistance at $2.81 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 125,316 shares. If that breakout triggers soon, then ARC will set up to re-test or possibly take out its next major overhead resistance levels at $3.60 to its 200-day moving average at $3.82 a share. Any high-volume move above its 200-day would then put $4.15 to $4.24 into range for shares of ARC.

Traders can look to buy ARC off any weakness to anticipate that breakout and simply use a stop that sits just below some near-term support levels at $2.27 to $2.19 a share. One can also buy ARC 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 at $2.45 a share.

Depomed

Another under-$10 stock that looks ready to trigger a near-term breakout trade is Depomed (DEPO), which is a specialty pharmaceutical company initially focused on neurology, pain and other diseases of the central nervous system. This stock has been soaring higher during the last six months, with shares up 34.9%.

This biotech player has a major catalyst on the horizon. On March 4, the FDA will hold an advisory committee meeting for their drug Serada to evaluate whether it is a safe and efficacious treatment for menopausal hot flashes.

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If you take a look at the chart for Depomed, you’ll notice that this stock has been uptrending strong for the last three months, with shares soaring from its low of $5.35 to its recent high of $7.15 a share. During that uptrend, shares of DEPO have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of DEPO within range of triggering a near-term breakout trade.

Market players should now look for long-biased trades in DEPO if it manages to break out above some near-term overhead resistance and its 52-week high at $7.15 share with high volume. Look for a sustained move or close above $7.15 a share with volume that registers near or above its three-month average volume of 283,651 shares. If that breakout hits soon, then DEPO will set up to re-test or possibly take out its next major overhead resistance levels at $8 to $9 a share.

Traders can look to buy DEPO off any weakness to anticipate that breakout and simply use a stop that sits close to some near-term support at $6.63 a share or its 50-day at $6.36 a share. One can also buy off strength once DEPO takes out $7.15 a share with volume and then simply use a stop that sit near that $6.63 level.

Mitek Systems

One under-$10 name that’s trending very close to triggering a major breakout trade is Mitek Systems (MITK), which is engaged in the development, sale and service of its proprietary software solutions related to mobile imaging applications and intelligent recognition software. This stock is off to a hot start in 2013, with shares up 39%.

If you take a look at the chart for Mitek Systems, you’ll notice that this stock has been uptrending strong for the last three months and change, with shares soaring higher from its low of $2.05 to its recent high of $5.01 a share. During that uptrend, shares of MITK have been consistently making higher lows and higher highs, which is bullish technical price action. That move is quickly pushing shares of MITK within range of triggering a major breakout trade.

Traders should now look for long-biased trades in MITK if it manages to break out above some key overhead resistance levels at $5.01 to $5.10 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 volume of 431,748 shares. If that breakout triggers soon, then MITK will set up to re-test or possibly take out its next major overhead resistance levels at $6.26 to $7 a share. Any high-volume move above $7 will then put $8 to $9 into range for shares of MITK.

Traders can look to buy MITK off any weakness to anticipate that breakout and simply use a stop that sits right below its 50-day moving average of $3.69 a share. One could also buy MITK off strength once it clears those breakout levels with volume and simply use a stop near $4.50 a share.

This stock is a favorite target of the short-sellers, since its current short interest as a percentage of its float is very high at 23.6%. If that breakout triggers soon, then we could see a monster short-squeeze develop for shares of MITK.

Biostar Pharmaceuticals

Another under-$10 name that’s starting to move within range of triggering a near-term breakout trade is Biostar Pharmaceuticals (BSPM), which develops, manufactures and markets pharmaceutical products for a variety of diseases and conditions in the People's Republic of China. This stock is off to a decent start in 2013, with shares up 12.9% so far.

If you take a look at the chart for Biostar Pharmaceuticals, you’ll notice that this stock is just starting to spike higher off its 50-day moving average of $1.06 a share with above-average volume. This move is quickly pushing shares of BSPM within range of triggering a near-term breakout trade.

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Market players should now look for long-biased trades in BSPM if it manages to break out above some near-term overhead resistance levels at $1.18 a share to its 200-day moving average at $1.21 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 37,579 shares. If that breakout triggers soon, then BSPM will set up to re-test or possibly take out its next major overhead resistance levels at $1.36 to $1.39 a share. Any high-volume move above $1.39 will then put $1.55 to $2 into range for shares of BSPM.

Traders can look to buy BSPM off any weakness to anticipate that breakout and simply use a stop that sits right below its 50-day moving average of $1.06 a share. One could also buy BSPM off strength once it takes out those breakout levels with volume and then simply use a stop that sits just below $1.10 a share.

Medgenics

One more under-$10 name that’s trending very close to triggering a near-term breakout trade is Medgenics (MDGN), which is a medical technology and therapeutics company focused on providing sustained protein therapies. This stock has been destroyed by the sellers so far in 2013, with shares off by 32.8%.

If you take a look at the chart for Medgenics, you’ll notice that this stock has been downtrending badly for the last three months, with shares falling from its high of $10.05 a share to its recent low of $4.86 a share. During that downtrend, shares of MDGN have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of MDGN have started to find support near $5 a share and its quickly moving within range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in MDGN if it manages to break out above some near-term overhead resistance at $5.20 a share with high volume. Look for a sustained move or close above $5.20 a share with volume that hits near or above its three-month average action of 81,157 shares. If that breakout triggers soon, then MDGN will set up to re-fill its previous gap down zone from earlier this month that started near $6 a share. It’s even possible that MDGN could bounce back towards its 50-day moving average of $6.91 a share if that breakout hits.

Traders can look to buy MDGN off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support at $4.86 a share. One could also buy MDGN off strength once it clears $5.20 with volume and then simply use the same stop at $4.86 a share. I would add to either position if MDGN punches through $6 with solid 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.

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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.