WINDERMERE, Fla. (Stockpickr) -- There isn't a day that goes by on Wall Street during which 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 arena, including
( ISTA), soaring over 70%;
( CRYP), jumping over 40%;
, ripping around 20% higher; and
up over 30%. 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
One under-$10 stock that's setting up to trend significantly higher is
, a renewable chemicals and advanced biofuels company. This stock is down big so far in 2011, with shares off by over 60%.
Gevo was a
on Thursday after the company announced it had reached an agreement with
to develop and commercialize 100% renewable plastic bottles.
If you take a look at the chart for Gevo, you'll see that this stock has dropped big from its July high of $18.75 to a recent low of $5.18 a share. Since hitting that low, the stock has started to rebound nicely and it has found some buying support between $5.18 and $5.35 a share. The upside volume was very strong off the news Thursday with 713,000 shares traded, which is well above its three-month average of 99,000 shares.
Traders should now watch Gevo for a
if this stock can manage to sustain a
and close above its 50-day
of $7.07. Look for volume on any move above the 50-day that registers close to or above 99,000 shares. If we get that move, then this stock should setup to challenge its next significant overhead resistance levels at $8 to $10 a share in the near-term.
You could be a buyer of Gevo off any weakness and simply place a stop just below either $5.35 or $5.18 a share. You could also buy off strength and get long once the 50-day is taken out with volume. I would use a stop just below the 50-day if get long off strength.
It's worth noting that this is a heavily shorted stock with around 17% of the tradable float currently sold short by the bears. Look for the potential of a short-squeeze to develop if GEVO can get back above its 50-day with volume in the near future.
Another under-$10 stock that's quickly approaching a big breakout is
( DEXO), a marketing services company that helps local businesses to reach consumers. This stock is down huge in 2011 with shares off by over 75%.
If you take a look at the chart for Dex One, you'll notice that this stock just put in a huge run from its October low of 36 cents to a recent high of $1.92 a share. Since that run, the stock has started to pullback and form a consolidation pattern between $1.30 and $1.70 a share. The volume action overall for both the up and down days has also been expanding dramatically in the past month.
Market players should now watch DEXO for a near-term
if the stock can manage to clear $1.60 to $1.66 with volume. Look for volume that's tracking in close to or above its three-month average action of 1.3 million shares. If that move happens soon, then look for DEXO to trade towards $1.92 to $2.20 (the 200-day) a share, or possibly much higher. Keep in mind that it's important for DEXO to close above $1.66 with volume, not just take it out intraday.
You could now be a buyer of DEXO off any weakness and simply place a stop just below some big near-term
at $1.30 a share. You could also by off strength and get long on a move above $1.60 to $1.66, with a stop just below those levels, or down to $1.30 if you want to give it more room.
This stock is heavily shorted with around 11.6% of the tradable float currently sold short by the bears. The short-sellers have also been increasing their bets from the last reporting period by 10.8%, or by about 525,400 shares. Any move over $1.60 to $1.66 should spark a big short-squeeze, so keep this name on your trading radar.
One name under-$10 name in the biotechnology and drugs complex that's worth keeping on your trading radar is
, which is engaged in the design, discovery and development of neuronal nicotinic receptor therapeutics for the treatment of diseases and disorders of the nervous system. The sellers have destroyed this stock in 2011, with shares off by 70%.
If you take a look at the chart for Targacept, you'll see that this stock gapped down huge in November from $19.54 to under $8 a share. That gap down came on monster volume, which demonstrates that everyone who wanted out of this stock got out. Since that move, the stock has started to rebound and make higher lows and higher highs, which is bullish. Now the stock is setting up to breakout above some near-term overhead resistance levels, which if taken out, could spark a big move in this stock.
Market players should now watch TRGT for a breakout trade if it can manage to clear and close above $7.80 to $8 a share on high-volume. Look for volume that tracks in close to or above its three-month average action of 867,956 shares. The stock hit $8.05 already today, so watch for a close near the daily highs on TRGT. Volume so far is decent with almost 300,000 shares traded.
You could be a buyer of TRGT on any move or close above $7.80 to $8 on high volume. I would simply use a stop just below $7.52 or even tighter if you get long off strength. You could also buy off weakness with a mental stop just below $7.22. I would add to either position once TRGT takes out its gap down day high of $9.49 with volume. A move over $9.49 should set this stock up to fill some of that huge gap down from $19.54.
This is another heavily shorted stock by the bears. The current short interest as a percentage of the float for TRGT is a rather large 12.7%. The bears have also been increasing their bets form the last reporting period by 15.4%, or by about 566,500 shares. Any move back into that gap should set off a monster short-squeeze for TRGT, so keep this name on your trading radar.
Targacept shows up on a recent list of
One name in the broadcasting and Cable TV sector that looks poised for higher prices is
( LNET), a provider of interactive media and connectivity solutions to the hospitality industry in the U.S., Canada and Mexico. The bears have done a number on LNET since this stock is off by over 40% in 2011.
If you take a look at the chart for LodgeNet Interactive, you'll notice that this stock formed a triple top between April and June at $3.80 to $3.70 a share. After forming that top, the stock plunged down to its October low of $1.31 a share. The stock has since then rallied to its current price of $2.40. During that uptrend, the stock has been making mostly higher highs and higher lows, which is bullish.
Market players should now watch LNET for a breakout trade if the stock can manage to sustain a
and close above its 200-day moving average of $2.67 to $2.70 a share. Look for volume that's near or above its three-month average action of 140,381 shares. Volume on Thursday (an up day) was 1.47 million, which is well above the average volume. If we get a high-volume move above those levels I mentioned, then LNET should trend towards $3 to $3.50 a share, or possibly much higher.
You could be a buyer of LNET off any weakness and simply use a mental stop just below the 50-day
of $2.16 a share. You could also buy off strength and get long once the stock takes out $2.67 to $2.70 with volume. I would use a mental stop a few percentage points below those levels if you get long off strength.
This stock has a monster short interest since 28.9% of the tradable float currently sold short by the bears. If we get a breakout soon, then look for a large short-squeeze to setup since this stock is a penny stock and it's so heavily shorted.
Kratos Defense & Security Solutions
One more under-$10 stock that traders should keep an eye on is
Kratos Defense & Security Solutions
, a specialized national security company engaged in providing mission critical products, services and solutions for the U.S. national security priorities. This stock has been crushed by the bears in 2011 with shares off by over 50%.
If you take a look at the chart for Kratos Defense & Security Solutions, you'll see that this stock plunged from its August high of $11.09 to a recent low of $4.61 a share. After hitting that low, the stock has started to rebound sharply and the upside volume has been expanding. Two recent up days in December registered volume of 4.2 and 1.0 million shares, which is well above its three-month average action of 407,498 shares.
Market players should now watch KTOS for a breakout trade if the stock can manage to sustain a high-volume move and close above its 50-day moving average of $5.91 and above some near-term overhead resistance at $6.39 a share. Look for volume on any move above those levels that's near or above 407,498 shares. If we get that action, look for this stock to spike big back towards $7 to $8 a share, or possibly much higher.
If you like this stock from the long side, then look to buy it on any weakness with a mental stop just below $5.50 and anticipate the breakout. You can also buy off strength and get long on a close above the 50-day with volume. Use a mental stop just below $5.92 if you get long off strength. I would add to either position once KTOS takes out $7.25 with volume.
The bears are also heavily involved in KTOS since 11.8% of the tradable float is currently sold short. This is a decent short interest for a stock under $10 a share, so watch for a sharp spike higher if that breakout trade triggers soon.
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.