DELAFIELD, Wis. (Stockpickr) -- Could a new trend be developing in which the worst-looking stock charts end up providing the biggest gains?

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Just take a look at what shares of banking player Doral Financial (DRL) did on Friday. This stock exploded higher off its 52-week low of $1.87 to its intraday high of $4.05 a share with monster upside volume. The chart for DRL coming into that move was an absolute disaster. This stock had dropped from its March high of $13.25 a share to that 52-week low of $1.87 a share. Shares of DRL had gapped down in May from just under $10 a share to under $4 a share with heavy downside volume. This stock continued to slide lower to its 52-week low with strong downside volume flows.

The chart for DRL was a technical nightmare, but finally on Friday the market decided that it was too much and the selling was overdone. Shares of DRL were so oversold that it had a relative strength index reading of close to 10 before buyers finally stepped in and bought the stock in size. That's an extreme reading, and the monster move higher in the stock on Friday shows that shares of DRL had gone down too far too fast. Traders are still chasing this oversold chart today, with shares up 7% as I type this and approaching another breakout above resistance at $4.47 a share.

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Charts like DRL's are prevalent throughout this market right now, especially in the small-cap complex since that segment has been under pressure of late. To illustrate my point, just pull up the charts for such stocks as Prana Biotechnology (PRAN) , Voxeljet AG (VJET) - Get voxeljet AG Sponsored ADR Report, Himax Technologies (HIMX) - Get Himax Technologies, Inc. Sponsored ADR Report, Uni-Pixel (UNXL) and FireEye (FEYE) - Get FireEye, Inc. Report. You'll see some breathtaking technical destruction in these names. The bears have feasted on many of these names, but they might have overreached now, and it's time for some bullish action to take over.

One stock that jumps off my screen is Gigamon (GIMO) , which designs, develops and sells products and services that provide customers with visibility and control of network traffic for enterprises and services providers in the U.S., rest of the Americas, Europe, the Middle East, Africa and the Asia Pacific. Shares of GIMO have been absolutely destroyed by the bears over the last three months, with shares off sharply by 46%.

Gigamon has a market cap of $536 million and an enterprise value of $393 million. This stock trades at a fair valuation, with a forward price-to-earnings of 27.50. Its estimated growth rate for this year is -37.7%, and for next year it's pegged at 84.8%. This is a cash-rich company, since the total cash position on its balance sheet is $142.67 million and its total debt is zero.

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Recently, Gigamon reported revenue for the first quarter of 2014 of $31.8 million, vs. $25.8 million in the first quarter of 2013, which marked growth of 23% year-over-year. Non-GAAP gross margins were 75% in the first quarter of 2014, vs. 79% in the first quarter of 2013. However, net losses expanded to 7 cents per share from profits of 2 cents a share in the same period last year. That revenue figure was a disappointment, since the previous guidance was for $34 to $35 million. That revenue miss and gross margin slip was blamed on one expected large transaction from an existing customer in EMEA that did not come to fruition.

If you take a look at the chart for GIMO, you'll be blown away by the destruction the sellers have caused over the last month and change. This stock has been annihilated from its March high of $36.75 a share to its recent 52-week low of $14.75 a share. This stock gapped down huge in April from $26 to under $18 a share with heavy downside volume. Following that move, shares of GIMO continued to slide lower and hit that 52-week low of $14.75 a share. That absolute beating pushed shares of GIMO into extremely oversold territory, since its relative strength index reading almost hit 10 in mid-April.

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That worst might now be over for shares of GIMO and market players might start to come after this stock just like they did with DRL since it's one of the worst charts you can find. After hitting that $14.75 low, shares of GIMO have now started to stabilize and uptrend a bit, with the stock moving higher from $14.75 to its recent high of $18.09 a share. Shares of GIMO have now put in a potential double bottom at $14.75 to $15.13 a share. Shares of GIMO are now starting to push within range of triggering a big breakout trade above some key near-term overhead resistance levels.

The analyst community is starting to see the value in shares of GIMO down here. Credit Suisse upgraded the stock last week to outperform based on valuation, increasing visibility into network management spending, rising levels of activity and a product portfolio that is driving customer penetration. Credit Suisse raised its price target to $25 from $20 per share. DA Davidson also upgraded the stock recently based on valuation to buy from neutral. And even the great Goldman Sachs defended shares of GIMO recently, saying the weakness due to the first-quarter miss was overdone, since Goldman believes the large deal was not lost to a competitor and was just postponed.

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Traders should now look for long-biased trades in GIMO as long as its trending above some near-term support at $16 a share or above those double bottom support zones at $15.13 to $14.75 a share and then once it breaks out above some near-term overhead resistance at $17.47 to $18.09 a share with high volume. Look for a sustained move or close above those breakout levels with volume that registers near or above its three-month average volume of 731,916 shares. If that breakout starts soon, then GIMO will set up to re-test or possibly take out its next major over overhead resistance level at its gap-down-day from April at $20.01 a share. Any high-volume move above that level will then give GIMO a chance to re-fill some of its previous gap-down-day zone that started at $26 a share.

The bottom line: The market is starting to come after the worst-looking charts since the selling might have been taken to ridiculous levels. Some of those stocks deserve to be where they are, but many do not. Gigamon has already started to stabilize and possibly enter a new uptrend. If this stock manages to break out soon, then traders and investors could be rewarded with some quick profits since this stock has been hammered lower and possibly to unwarranted levels.

-- Written by Roberto Pedone in Delafield, Wis.


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At the time of publication, author had no positions in stocks mentioned. Roberto Pedone, based out of Delafield, 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 and You can follow Pedone on Twitter at or @zerosum24.