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5 Stocks Under $10 Set to Surge

Dragon Wave

One more under-$10 name that looks poised to trigger a near-term breakout trade is Dragon Wave ( DRWI), which is a producer of high-capacity packet microwave solutions which transmit voice, video and data over broadband connections. This stock has been hit by the sellers so far in 2013, with shares off by 32%.

If you take a look at the chart for Dragon Wave, you'll notice that this stock has been uptrending strong for the last two months, with shares moving higher from its low of $1.37 to its intraday high of $2.25 a share. During that uptrend, shares of DRWI have been mostly making higher lows and higher highs, which is bullish technical price action. That move is quickly pushing shares of DRWI within range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in DRWI if it manages to break out its 200-day moving average at $2.26 a share and then once it clears more resistance levels at $2.47 to $2.49 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 204,966 shares. If that breakout triggers soon, then DRWI will set up to re-test or possibly take out its next major overhead resistance levels at $3.20 to $3.70 a share.

Traders can look to buy DRWI off weakness to anticipate that breakout and simply use a stop that sits just below its 50-day at $1.82 a share. One can also buy off strength once DRWI clears those breakout levels with volume and then simply use a stop right below its 200-day at $2.26 a share or below $2.10 a share.

Keep in mind that this company is set to report earnings next Wednesday after the market close. You can trade this breakout if it triggers prior to the quarter and after the quarter, but holding through earnings always holds additional risk.

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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Follow Stockpickr on Twitter and become a fan on Facebook.

At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Madison, Wis., 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.

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