WINDERMERE, Fla. (Stockpickr) -- There isn't a day that goes by on Wall Street where 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 in the under-$10 complex Thursday, including
Houston American Energy
, which skyrocketed by 33%;
, which soared by 32%;
, which surged by 21%; and
, which also closed up 21%. 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.
With that in mind, here's a look at
Entertainment Gaming Asia
An under-$10 stock that's starting to flirt with a major breakout trade is
Entertainment Gaming Asia
, which engages in the ownership and leasing of electronic gaming machines in resorts, hotels and other venues, primarily in Cambodia and the Philippines. This stock is off to a red-hot start in 2012, with shares up over 225%.
If you take a look at the chart for Entertainment Gaming Asia, you'll notice that this stock has been uptrending strong since it broke out in March above some resistance at 31 cents per share on high volume. Since triggering that breakout, shares of Entertainment Gaming Asia have soared and printed new highs. Within that move, this stock has been making higher lows and higher highs, which is bullish technical price action.
Now EGT is flirting with another big breakout trade that could trigger a monster spike higher.
Traders should now look for long-biased trades in EGT if it can manage to trigger a break out above some near-term overhead resistance at 75 cents with high volume. Look for volume on a sustained move or close above 75 cents that registers near or well above its three-month average action of 467,494 shares. If we get that action soon, look for EGT to tap $1.00 to $1.25 a share, or possibly even $1.75 if the bulls continue to move into this low-priced stock with big upside volume flows.
Keep in mind that EGT could pull back towards some near-term support at 68 to 60 cents before it makes another run at taking out 75 cents. That said, as long as EGT is trending above 75 cents with strong upside volume flows, then this stock has a great chance of exploding much higher in the near future.
An under-$10 name in the chemical manufacturing complex that's started to trigger a major breakout trade is
, which owns and operates a nitrogen fertilizer plant in East Dubuque, Illinois, that manufactures and sells natural gas-based nitrogen fertilizer products within the corn-belt region in the U.S. This stock is off to a monster start in 2012 with shares up 74%.
If you take a look at the chart for Rentech, you'll notice that this stock has been a winning trade for the bulls over the last six months. During that timeframe, shares of Rentech have soared from a low of $1.26 to its recent high of $2.30 a share. During that monster run-up, shares of Rentech have been consistently making higher lows and higher highs, which is bullish technical price action.
That move has now pushed Rentech into breakout territory since the stock moved above some near-term overhead resistance on monster volume. On Thursday, Rentech broke out above some overhead resistance at $2.20 to $2.22 on volume of 4.9 million shares. That volume easily surpassed its three-month average action of 2.32 million shares.
Traders should now look for long-biased trades in RTK as long as it's trending above $2.10 to $2.20 with strong upside volume flows. I would consider any upside volume day that registers near or above 2.38 million shares as bullish action. If this breakout that triggered on Thursday is the real deal, then this stock should easily continue to uptrend and tag $3 to $4 a share in the near future. A move to $4 will only come into play if the past resistance at $3 is taken out on a closing basis with volume.
If you're bullish on RTK, and you get a chance to buy this stock off of weakness, then I would use $2.20 as my mental stop. Any high-volume move below $2.20 would take this stock off my long radar since chances are high that it will move back towards $2 a share at the minimum.
This stock isn't heavily shorted, with just 3.2% of its float sold short, but the bears have been increasing their bets on RTK from the last reporting period by 14.3% or by about 895,000 shares. The breakout on Thursday could have been the start of some serious short-covering, so make sure to have this name on your breakout radar going forward.
An under-$10 name in the fabricated products complex that's trading very close to triggering am major breakout is
, which engages in designing, manufacturing, and distributing ceramic valves and components for industrial use in the People's Republic of China. This stock hasn't done much so far in 2012, with shares up just 7.1%.
If you take a look at the chart for Shengkai Innovations, you'll see that this stock has been downtrending since it tagged a recent high of $2.89 back in February. During that move lower, shares of Shengkai Innovations have been consistently making lower highs and lower lows, which is bearish technical price action. That said, this stock has now started to find some big-time buying interest over the past few weeks at around $1.04 to $1.13 a share. The bulls have also just pushed VALV within range of trigging a major breakout trade.
Market players should now look for long-biased trades in VALV if it can manage to break out above some near-term overhead resistance levels at $1.41 (its 50-day) to $1.45 a share with high-volume. Look for a sustained move or close above those levels on volume that's near or well above its three-month average action of 411,238 shares. Volume on Thursday registered 1.59 million shares as VALV closed up 8% to $1.34 a share. That huge volume could be a prelude to a much bigger move in the future for VALV. If that breakout does trigger soon, then VALV could easily hit its next significant overhead resistance levels at $2.04 to $2.20 (its 200-day) a share very quickly.
Traders could get long VALV off of weakness and simply use a stop around some near-term support at $1.20 to $1.13 a share. Personally, I would rather buy the breakout as long as it comes with heavy volume. This stock clearly is garnering some interest here due to the big volume spikes, so keep it on your breakout trading radar.
Another under-$10 stock that just started to breakout on Thursday is
, a biotechnology company developing surfactant therapies to treat respiratory disorders and diseases. This stock has been in beast-mode for most of 2012, with shares up over 80% so far.
If you take a look at the chart for Discovery Laboratories, you'll notice that this stock made a parabolic move higher in March from around $3.35 to a high of $5.39 in just two trading sessions. Following that monster spike, shares of Discovery Laboratories have been sold off hard to a recent low of $2.37 a share. That selloff took DSCO back below its 50-day moving average, but the stock has been able to hold above its 200-day moving average. On Thursday, DSCO pushed back above its 50-day moving average of $2.97, and more important, it moved back above its March gap-down day high of $2.95 a share.
Market players should now look to play this breakout back above the 50-day for DSCO and look to play the potential of that March gap getting filled. Traders should consider long-biased trades as long as DSCO is trending above its 50-day moving average of $2.97 with strong upside volume flows. I would consider upside volume that's near or well above its three-month average action of 2,003,510 shares as bullish. Volume on Thursday finished at 1.42 million shares with the stock up 3.3% to $3.05 a share. That volume was decent, so look for continued momentum on Friday with a bit better upside volume flows.
Some potential targets to the upside for DSCO if this breakout holds, are the next significant overhead resistance levels at $3.73 to just above $4 a share. If DSCO were to then take out those levels with heavy volume, then it's possible it could make a run at that March high of $5.39 a share. I would simply avoid any long trades in DSCO if it moves back below its 50-day with heavy volume.
An under-$10 name in the shipping complex that looks poised for some big upside is
, which is engaged primarily in the ownership and operation of oil tankers and oil/bulk/ore carriers. This stock is off to a solid start in 2012, with shares up 57%.
If you take a look at the chart for Frontline, you'll notice that this stock has been in a monster uptrend for the past six months, with shares soaring from a low of $2.52 to a recent high of $9.47 a share. During that move, shares of Frontline have been mostly making higher lows and higher highs, which is bullish technical price action. That said, more recently the stock has been downtrending from $9.47 to $5.83 a share.
On Thursday, shares of Frontline soared 7.5% to $6.75 after the stock bounced hard right near its 50-day moving average of $6.26 a share. What I liked about that move Thursday is that FRO has started to move back above its downtrend line, which could be indicating that the short-term trend is going to change from bearish to bullish.
Traders should now look for long-biased trades in FRO if it can manage to clear some near-term overhead resistance at $7.00 to $7.04 with high-volume. Look for a sustained move or close above those levels on volume that's near or well above its three-month average action of 2,799,250 shares. Volume on Thursday registered 2.03 million shares, which is pretty decent volume for that 7.5% spike higher. If that breakout does trigger soon, then look for FRO to make a run at $8 to possibly its recent high of $9.47 a share. I would simply avoid any long trades in FRO if it drops back below its 50-day moving average of $6.26 with heavy volume.
Keep in mind that FRO is a favorite target of short-sellers. The current short interest as a percentage of the float for FRO is an extremely high 22.4%. If the trend for FRO is about to switch over to bullish, then we could easily see a monster short-squeeze in the coming days or weeks.
To see more hot under-$10 equities, 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.