Stock Quotes in this Article: EXFO, FALC, SNTS, VDSI, ZGNX

WINDERMERE, Fla. (Stockpickr) -- There isn't a day that goes by on Wall Street when certain stocks trading for $10 a share or less 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 China Auto Logistics (CALI), which skyrocketed by 82%; Institutional Financial Markets (CALI), which soared by 31%; Startek (SRT), which ripped higher by 22%; and Hyperdynamics (HDY), which spiked higher by 13.4%. You don't even have to catch the entire move in lower-priced stocks such as these to make outsized returns when trading.

One low-priced stock that recently exploded higher was Impac Mortgage (IMH), which I highlighted in Oct. 2's "5 Stocks Under $10 Soaring Higher" at around $8.70 a share. I mentioned that IMH was ripping to the upside and the stock was starting to move into major breakout territory. That move was starting because IMH was challenging some near-term overhead resistance levels at $8.03 to $8.63 a share with above-average volume. I advised traders to continue to look for long-biased trades in IMH as long as it was trending above $8.03 to $8.63 a share with strong upside volume flows.

Guess what happened? Shares of IMH never looked back once it took out those key overhead resistance levels of $8.03 to $8.63 a share. The stock went on make a monster move higher to $11.94 in just a few weeks. It briefly pulled back to just above its 50-day moving average later that month, but then went on to skyrocket again with shares now trading at $15.75 a share. This stock is a perfect example of how powerful trading breakouts can be for low-priced stocks.

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.

EXFO

One under-$10 stock in the communications equipment complex that's trending very close to triggering a major breakout trade is EXFO (EXFO). This company is a provider of next-generation test and service assurance solutions for wireless and wireline network operators and equipment manufacturers in the global telecommunications industry. This stock has been hammered by the sellers during the last six months, with shares off by around 30%.

If you take a look at the chart for EXFO, you'll notice that this stock has been downtrending for the last two months and change, with shares dropping from $5.93 to its recent low of $4.37 a share. During that downtrend, shares of EXFO were making mostly lower highs and lower lows, which is bearish technical price action. That said, the stock has started to spike higher during the last few trading sessions with
monster upside volume. That action is now pushing EXFO within range of triggering a major breakout trade.

Traders should now look for long-biased trades in EXFO once it manages to break out above some near-term overhead resistance levels at $4.87 to $5.12 a share, and then once it takes out more resistance at $5.39 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 36,375 shares. If that breakout triggers soon, then EXFO will set up to re-test or possibly take out its next major overhead resistance levels at $5.93 to $6.83 a share.

Traders can look to buy EXFO once it clears its 50-day moving average at $4.87 a share with strong upside volume flows. I would then add to any long position once EXFO takes out $5.12 to $5.39 a share high heavy upside volume.

FalconStor Software

Another under-$10 stock that's setting up to trigger a near-term breakout trade here is FalconStor Software (FALC). This company is engaged in disk-based data protection. It delivers proven, comprehensive, data protection solutions that facilitate the continuous availability of business-critical data with speed, integrity, and simplicity. This stock has been downtrending for the past six months, with shares of by 25%.

If you take a look at the chart for FalconStor Software, you'll notice that this stock has been trending sideways for the past month and change, with share moving between $2.47 on the upside and $1.95 on the downside. Buyers have stepped into the stock today not far from the lower end of its range and pushed the stock back above its 50-day moving average of $2.13 a share. This move is quickly pushing shares of FALC within range of triggering a near-term breakout trade.

Market players should now look for long-biased trades in FALC once it breaks out above some near-term overhead resistance levels
at $2.35 to $2.47 a share, and then once it clears $2.49 to $2.61 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 77,094 shares. If that breakout triggers soon, then FALC will set up to re-test or possibly take out its next major overhead resistance levels at $2.76 to $2.83 a share. If FALC were to clear $2.83 a share
with volume, then this stock could really explode higher towards its next major overhead resistance levels at $3.60 to $3.96 a share.

Traders can look to buy FALC off any weakness as long as it's trending above its 50-day moving average of $2.13 a share, or at least above some near-term resistance levels at $2.25 to $2.35 a share with strong upside volume flows.

Santarus

One under-$10 name in the biotechnology and drugs complex that's close to triggering a major breakout trade is Santarus (SNTS). This company is focused on acquiring, developing and commercializing proprietary products that address the needs of patients treated by gastroenterologists and other targeted physicians. This stock has been on fire so far in 2012, with shares up a whopping 188%.

If you take a look at the chart for Santarus, you'll notice that this stock has been uptrending extremely strong for the last two months, with shares skyrocketing from a low of $5.70 to its recent high of $9.78 a share. During that uptrend, shares of SNTS have been making mostly higher lows and higher highs, which is bullish technical price action. Also during that move, the upside volume patterns for SNTS have been very bullish. That recent action has how pushed SNTS within range of triggering a major breakout trade.

Traders should now look for long-biased trades in SNTS once it manages to break out above some near-term overhead resistance levels at $9.40 to $9.78 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 673,419 shares. If that breakout triggers soon, then SNTS will set up to trend significantly north of $10 a share. Some possible targets are $13 to $15 a share in the near future.

Traders can look to buy SNTS off weakness as long as it's trending above its 50-day moving average at $8.64 a share with strong upside volume flows. One could also buy SNTS off strength once it takes out those breakout levels with high volume and then simply use a stop just below $9 a share.

Zogenix

Another under-$10 name that's trading very close to triggering a near-term breakout trade is Zogenix (ZGNX). This is a pharmaceutical company, engaged in the commercializing and developing products for the treatment of central nervous system disorders and pain. This stock has been trending to the upside during the last six months, with shares up 35%.

This company said today that the FDA Anesthetic and Analgesic Drug Products Advisory Committee, or AADPAC, will review its New Drug Application, or NDA, for Zohydro ER -- hydrocodone bitartrate extended-release capsules -- on Dec. 7, 2012. This news could provide a catalyst for the stock to move substantially higher into that review date.

If you take a look at the chart for Zogenix, you'll notice that the stock is bouncing strongly here right off its 200-day moving average of $2.27 a share with strong upside volume flows. Volume so far today has already hit over 640,000 shares, which is quickly approaching its
three-month average action of 645,621 shares. This action is also moving ZGNX within range of challenging its 50-day moving average of $2.61 a share.

Market players should now look for long-biased trades in ZGNX as long as it's trending above its 200-day at $2.27, and then once it clears its 50-day at $2.61 a share with strong upside volume flows. I would consider any upside volume day that registers near or above 645,621 shares as bullish. If ZGNX can trigger that move, then this stock will set up to re-test or possibly take out its next significant overhead resistance levels at $2.90 to $3.10 a share, or possibly even $3.30 a share. Any high-volume move above $3.30 a share would then put
$3.90 into focus for ZGNX.

Traders can look to buy ZGNX off any weakness and then simply use a stop that sits just below its 200-day moving average of $2.27 a share. One could also buy off strength once ZGNX takes out its 50-day at $2.61 and then simply use the same stop just below its 200-day.

VASCO Data Security International

One final under-$10 name that's trading very close to triggering a near-term breakout trade is VASCO Data Security International (VDSI). This company designs, develops, markets and supports open standards-based hardware and software security systems that manage and secure access to information assets. This stock has been uptrending modestly so far in 2012, with shares up by just over 15%.

If you take a look at the chart for VASCO Data Security International, you'll notice that this stock gapped down big in early October from over $9 a share to a low of $6.51 a share with monster volume. Following that sharp move lower, shares of VDSI have started to move into a sideways trading pattern. That pattern has the stock moving between $6.95 on the downside and $7.60 on the upside. Shares of VDSI are now moving within range of breaking out above the upper-end of that sideways pattern.

Traders should now look for long-biased trades in VDSI once it breaks out above some near-term overhead resistance levels at $7.49 to $7.60 a share, and then once it clears its gap down day high of $7.90 a share with high volume. Look for a sustained move or close above those levels with volume that hits close to or above its three-month average action of 167,948 shares. If that breakout triggers soon, then VDSI will set up to re-test or possibly take out its next significant overhead resistance levels at $8.64 to $9 a share, or possibly even $9.95 to $10.41 a share.

One could look to buy VDSI off weakness to anticipate that breakout and simply use a stop that sits just below some previous support levels at $7 to $6.95 a share. One could also buy off strength once VDSI clears those breakout levels with volume and then simply use a stop that sits just below $7.25 a share.

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.