BALTIMORE (Stockpickr) -- There isn't a day that goes by on Wall Street when certain stocks trading near or under $10 a share 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 today in the under-$10 complex, including
, soaring close to 40%;
(ROYL), ripping over 15%;
, adding around 10%; and
, up 10%. You don't even have to catch the entire move in lower-priced stocks such as these to make outsized returns when trading.
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
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.
Here's a look at a number of
Brocade Communications Systems
One under-$10 stock that's
is computer storage device maker
Brocade Communications Systems
. This stock hasn't done much in 2011, with shares off by around 3.6%.
If you take a look at the chart for Brocade Communications Systems, you'll see that this stock has been doing nothing but trending higher since it gapped down in August from around $5 to $3.18 a share. During that uptrend, the stock has been consistently making higher lows and higher highs, which is bullish price action. Now that is quickly approaching a breakout trade if shares can manage to move above some near-term overhead resistance levels.
Market players should now watch for a sustained move and close above $5.10 and then the 200-day moving average at $5.40 on high volume. A
above those levels should set this stock up to trend significantly higher. Traders should watch for volume that tracks in close to or above its three-month average volume of 9.9 million shares.
One could be a buyer of this stock off any weakness and anticipate the breakout. I would simply use a stop a few percentage points from your entry if you buy on weakness below the breakout levels. One could also buy off strength and get long once $5.10 is taken out with volume, then add above $5.40 on a high-volume move.
Another under-$10 stock that looks poised for higher prices is biotechnology and drug maker is
. This is a clinical-stage biopharmaceutical company focused on developing improved treatments for cardiovascular disease. This stock has dropped around 12.4% so far in 2011.
If you take a look at the chart for Amarin, you'll notice that this stock has been downtrending big for the last couple of months, with shares consistently making lower highs and lower lows. Whenever any stock shows a price pattern like of lower highs and lows, it's always considered bearish behavior. Shares of Amarin were trading as high as $15.02 in July but have since then dropped to a recent low of $6.43. Since hitting that low, the stock has started to rebound and is now approaching a breakout trade if it can manage to move above some past overhead resistance levels.
Trades should now watch for a sustained move and close on high-volume above some overhead resistance at $7.34 a share. A high-volume move and close above that level should set this stock up for a big bounce back towards its 50-day moving average of $8.77, or possibly much higher towards its 200-day moving average of $11.45.
One could now be a buyer of this stock off any noticeable weakness with a stop just below some near-term support at $6.43. You could also be a buyer off of strength and get long once $7.34 is taken out with volume. Look for volume that's tracking in close to or above its three-month average action of 2.49 million shares.
Amarin shows up on a recent list of
One name under $10 in the communications equipment complex that's worth watching here is
, a provider of business communication solutions. This stock is off by around 25% so far in 2011.
If you take a look at the chart for ShoreTel, you'll notice that this stock plunged from its July high of $10.84 to a recent low of $4.57 a share. After hitting that low, the stock has started to form a more bullish trend with shares making higher highs and higher lows. Shares of ShoreTel recently slipped back below its 50-day moving average of $5.75, but buyers have started to move into the stock just below that level at $5.50.
Market players should watch for SHOR to move back above its 50-day at $5.75 on high volume, to signal that the stock wants to make trend higher again. Look for volume on a move and close above the 50-day that clocks in close to its three-month average action of 493,252 shares. If see that action, then look for shares of SHOR to make a run at its next significant overhead resistance level of $6.97, or possibly much higher towards its 200-day moving average of $8.02.
Once could be a buyer of this stock off any noticeable weakness and set a mental stop at around $5.20 a share, or use an even tighter stop at just under $5.45. You could also buy off strength and get long once the stock sustains a move and close above $5.75 on high-volume. Simply use a mental stop a few percentage points below $5.75 if you buy off strength.
ShoreTel shows up on a list of
One more under-$10 stock that's starting to trigger a breakout trade today is
, an independent oil and gas company based in Houston, with approximately 12,500 gross acres of oil and gas leases in South Texas primarily in the Gonzales County and Wilson County, Texas. This stock has been trending lower so far in 2011, with shares off by around 11.5%.
If you take a look at the chart for Lucas Energy, you'll see that shares of this oil player dropped big from its July high of $3.30 a share to a recent low of $1.04 a share. After printing that low, the stock has started to rebound sharply towards its current price of $2.10 a share. That big rebound now sets up LEI for a breakout trade if the stock can manage to clear a few overhead resistance levels.
Traders should now watch LEI to break out above $2.15 and $2.25 on high volume. Look for volume that's tracking in close to or above its three-month average volume of 219,642 shares. Volume today has already registered over 610,000 shares with the stock trading up over 10%. This high-volume move today is a good sign that LEI could be under accumulation and setting up to trend higher.
If you see a sustained move and close over $2.15 to $2.25, then look for the stock to take out its 200-day moving average of $2.53 with volume. If we see all of these overhead resistance levels taken out to the upside, then look for a big spike higher in this stock potentially back towards $3.30 to $4.00 a share.
One could be a buyer of this stock off any noticeable weakness and simply use a mental stop at around $1.80 or $1.73 (its 50-day) a share. One could also just buy strength and get long above $2.15 to $2.25, and then add again above $2.53. If you buy off strength use a mental stop a few percentage points below $2.15.
To see more hot under-$10 stocks, check out the
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 stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.