Just take a look at some of the hot movers in the under-$10 complex from Wednesday, includingTorm A/S (TRMD), which exploded higher by 152%; Syntroleum (SYNM), which ripped higher by 32.4%; CSP (CSPI), which soared by 27.8%; and Affymax (AFFY), which spiked up by 25.2%. You don't even have to catch the entire move in lower-priced stocks such as these to make outsized returns when trading.
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.
China Auto Logistics
One under-$10 stock that's trending very close to trigger a major breakout trade is China Auto Logistics (CALI), which trades and sells imported automobiles in the People's Republic of China and also offers financing services. This stock has been on a tear during the last six months, with shares up sharply by 65%.
If you take a look at the chart for China Auto Logistics, you'll notice that this stock recently formed a double bottom chart pattern at $2.77 to $2.80 a share. That bottom formed right above its 200-day moving average of $2.69 a share. Shares of CALI are now starting to bounce off those near-term support levels and the stock is quickly moving within range of triggering a major breakout trade.
Traders should now look for long-biased trades in CALI if it manages to break out above some near-term overhead resistance levels at $3.27 to $3.31 a share and then once it clears its 50-day moving average at $3.39 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 159,787 shares. If that breakout triggers soon, then CALI will set up to re-test or possibly take out its next major overhead resistance levels at $4.50 to $5.50 a share.
Traders can look to buy CALI off weakness to anticipate that breakout and simply use a stop that sits right around its 200-day at $2.69 a share. One can also buy CALI off strength once it takes out those breakout levels with volume and then simply use a stop right below $3 a share.
Neuralstem
Another under-$10 stock that's starting to trend within range of triggering a major breakout trade isNeuralstem (CUR), which is engaged in the development and commercialization of treatments for central nervous system disease based on transplanting human neural stem cells and the use of small molecule drugs. This stock is off to a decent start in 2013, with shares up 17.4%.
If you take a look at the chart for Neuralstem, you'll notice that this stock has been uptrending strong for the last month, with shares moving higher from its low of $1 to its recent high of $1.29 a share. During that uptrend, shares of CUR have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of CUR within range of triggering a major breakout trade.
Market players should now look for long-biased trades in CUR if it manages to break out above some near-term overhead resistance levels at $1.29 to $1.40 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 319,875 shares. If that breakout hits soon, then CUR will set up to re-test or possibly take out its next major overhead resistance levels at $1.57 to $1.96 a share.
Traders can look to buy CUR off weakness to anticipate that breakout and simply use a stop that sits right below its 50-day at $1.15 a share. One can also buy CUR off strength once it takes out those breakout levels with volume and then simply use a stop that sits right below $1.20 a share.
Net 1 UEPS Technologies
Another under-$10 name that's rapidly approaching a major breakout trade is Net 1 UEPS Technologies (UEPS), which provides a smart-card based alternative payment system for the unbanked and underbanked populations of developing economies. This stock has been on fire so far in 2013, with shares up big by 52%.
If you take a look at the chart for Net 1 UEPS Technologies, you'll notice that this stock has been uptrending strong for the last six months, with shares soaring higher from its low of $3.01 to its recent high of $7.95 a share. During that uptrend, shares of UEPS have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of UEPS within range of triggering a major breakout trade.
Traders should now look for long-biased trades in UEPS if it manages to break out above some near-term overhead resistance levels at $7.62 to $7.95 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 165,680 shares. If that breakout triggers soon, then UEPS will set up to re-test or possibly take out its next major overhead resistance levels at $8.50 to $10.50 a share.
Traders can look to buy UEPS off weakness to anticipate that breakout and simply use a stop that sits right below its 200-day at $7.25 a share or right below some key near-term support at $7 a share. One can also buy UEPS off strength once it clears those breakout levels with volume and then simply use a stop that sits right below its 200-day at $7.25 a share.
Keep in mind that this company is set to report earnings today after the market close. Traders should either look to trade UEPS ahead of the quarter for day trades or wait until after the earnings are out to play the potential breakout.
Solazyme
Another under-$10 stock that's just starting to trigger a major breakout trade here is Solazyme(SZYM), which is in the business of transforming a range of low-cost plant-based sugars into high-value oils. This stock has been trending strong so far in 2013, with shares up by 21%.
This company just reported earnings on Wednesday, posting a loss that met Wall Street's expectations but coming up short on beating revenue expectations. Revenue decreased 50.59% to $6.7 million from the year-earlier quarter.
If you take a look at the chart for Solazyme, you'll notice that this stock has been uptrending strong for the last month, with shares soaring higher from its low of $7.15 to its intraday high of $9.86 a share. During that uptrend, shares of SZYM have been mostly making higher lows and higher highs, which is bullish technical price action. That move has started to push shares of SZYM into breakout territory and back above its 200-day moving average of $9.35 a share.
Market players should now look for long-biased trades in SZYM if it manages to break out above some near-term overhead resistance levels at $9.50 to $9.90 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 556,451 shares. If that breakout triggers soon, then SZYM will set up to re-test or possibly take out its next major overhead resistance levels at $12 to $13 a share.
Traders can look to buy SZYM off weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support at $8.75 a share. One can also buy SZYM off strength once it clears those breakout levels with volume and then simply use a stop right below its 200-day moving average of $9.35 a share, or right below $9 a share.
This stock is very popular with the short-sellers, since the current short interest as a percentage of the float for SZYM is extremely high at 21.7%. This stock has big time short-squeeze potential, so make sure to put this on your breakout trading radar.
RadioShack
One final under-$10 stock that looks ready to trigger a major breakout trade is RadioShack (RSH), which is involved in the retail sale of consumer electronics goods and services through its RadioShack store chain. This stock has been red hot so far in 2013, with shares up a whopping 72%.
If you take a look at the chart for RadioShack, you'll notice that this stock recently formed a double bottom chart pattern at around $3.03 to $2.97 a share. Following that bottom, shares of RSH have ripped higher back above its 50-day moving average at $3.28 a share and it broke out above some near-term overhead resistance levels at $3.33 to $3.34 a share. That move is now quickly pushing shares of RSH within range of triggering an even bigger breakout trade.
Traders should now look for long-biased trades in RSH if it manages to break out above some key overhead resistance levels at $3.87 to $4.17 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 2.38 million shares. If that breakout triggers soon, then RSH will set up to re-test or possibly take out its next major overhead resistance levels at $5 to $6 a share.
Traders can look to buy RSH off weakness to anticipate that breakout and simply use a stop that sits just below its 50-day at $3.28 a share, or right below $3 a share. One can also buy off strength once RSH clears those breakout levels with volume and then simply use a stop right below $3.40 to $3.30 a share.
This stock is a favorite target of the bears, since the current short interest as a percentage of the float for RSH is extremely high at 36.1%. If RSH triggers that breakout soon, then this stock has explosive upside potential due to this high short interest. We could easily get a monster short-squeeze, so be ready to play the breakout if it triggers for shares of RSH.
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 Madison, Wis.
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