Three Picks From Tech's Five & Dime

When you look to buy a tech stock trading between $5 and $10, note that many mutual fund managers by their guidelines can't own stocks trading below that upper level, which is a reason shares tend to languish below $10 for a long period of time.

If there is a reason for a stock to fall below $10, expect to see selling pressure from the mutual fund managers. Once the selling subsides, and if the stock stays above $5, some speculation is merited in stocks that still have positive profiles. I believe a good strategy for members of this group is to buy tech stocks trading for less than $10, but to keep a sell-stop in case the stock breaks below $5.

Stocks from the Tech Five & Dime should be considered speculative. But they can be rewarding if you find the ones that can get back above $10 before they break below $5.

My model generated three attractive buys in the Tech Five & Dime:

A weekly close above my quarterly risky level at $10.03 should bring Interwoven(IWOV Quote) back on the focus list for equity mutual funds that concentrate on technology. Interwoven provides enterprise content management software and services, and is a whopping 75.0% undervalued, with a positive weekly chart profile. Its five-week modified moving average is $7.73, and its 200-week simple moving average is at $12.43. Micromuse(MUSE Quote) also develops software, and also is very undervalued -- 65.7% so. In addition, it has a positive weekly chart profile, with dynamics that again should put it in the spotlight: Its five-week MMA is $5.89 and its 200-week SMA is at $6.63. Weakness should hold my monthly pivot at $6.47, and a weekly close above $7.46 will put the focus on that $10 threshold.

Online media outfit RealNetworks(RNWK Quote) is less undervalued than the other two picks, at "only" 45.8% undervalued, with a positive weekly chart profile. The stock is between its five-week MMA at $5.19 and its 200-week SMA at $5.67. As long as the weekly chart profile stays positive, the next milestone would be a weekly close above the 200-week SMA at $5.67, which would target my quarterly risky level at $7.83.

If you have any other stocks you believe should be on the shelf of the Tech Stock Five & Dime, or any low-priced names that you'd like to see profiled, please send me an email. I will cover them in next Tuesday's Tech Trading Diary on TheStreet.com.

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Please note that due to factors including low market capitalization and/or insufficient public float, we consider Interwoven to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.