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5 Stocks Under $10 Set to Soar

Arena Pharmaceuticals

An under-$10 stock in the biotechnology and drugs complex that looks ready to soar higher is Arena Pharmaceuticals (ARNA - Get Report), which is focused on discovering, developing and commercializing oral drugs that target G protein-coupled receptors, in four therapeutic areas: cardiovascular, central nervous system, inflammatory and metabolic diseases. This stock has been on fire so far in 2012, with shares up over 357%.

If you take a look at the chart for Arena Pharmaceuticals, you'll notice that this stock sold off sharply from its June high of $13.50 a share to its recent low of $6.95 a share. During that downtrend, shares of ARNA were mostly making lower highs and lower lows, which is bearish technical price action. That said, during the last month shares of ARNA have stabilized and found buying interest near $7 a share. The stock has also started to make higher lows, and it's now setting up to triggering a near-term breakout trade.

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Traders should now look for long-biased trades in ARNA if this stock can manage to break out above some near-term overhead resistance at $8.86 a share, and then above its 50-day moving average of $9.29 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 22.6 million shares. If that breakout triggers soon, then look for ARNA to setup for a run back towards it 52-week high of $13.50 a share, or at least towards $10.35 to $12 a share.

Traders can look to buy ARNA off weakness and simply use a stop that sits around $8 to $7.69 a share. If we don't see much weakness in the short-term, then look to get long around current levels and simply anticipate that breakout. If you get long near current levels, then use a stop at around $8 a share.

Keep in mind that this is a heavily-shorted stock, since the current short interest as a percentage of the float for ARNA is 21.3%. If that breakout triggers soon, then ARNA could see the shorts cover and lock in some of their gains off the recent drop from $13.50 a share.
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