WINDERMERE, Fla. (Stockpickr) -- There isn't a day that goes by on Wall Street when certain stocks trading for less than $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 from Wednesday, including
( SAVB), which exploded 62%;
, which soared by 22.4%;
, which skyrocketed 22.8%; and
, which closed up 22.6%. 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
One under-$10 stock that could be poised for a powerful bounce higher is
, a biotechnology company engaged in developing small molecule therapies for the treatment of cancer. Exelixis is focusing its resources and development efforts on cabozantinib (XL184). This stock has been hit hard by the bears during the last six months, with shares off by 20%.
If you take a look at the chart for Exelixis, you'll notice that this stock was hammered by the sellers during the last few trading sessions, with shares plunging from $6.95 to a recent low of $4.27 a share. That selloff came with monster volume, and during the move shares of EXEL never once flashed a buy signal since it was clearly downtrending.
That said, the stock has now entered oversold territory since its relative strength index reading is trending below 30. Shares of EXEL have also now dropped down near some previous support levels at $4.40 to $4 a share.
Just this morning, huge upside volume is moving into EXEL with over 31 million shares traded versus its three-month average volume of 1.8 million shares. At last check, EXEL is up 5.2% off that monster upside volume. That huge volume is due to a secondary offering that price 30 million shares at $4.25.
Traders should now look for long-biased trades in EXEL if it can manage to hold a trend above $4.40 to $4 a share with strong upside volume flows. I would consider any upside volume day that registers near or above 1.88 million shares as bullish. If EXEL continues to see buyers step in here and support that price above $4 a share, then we could easily see this stock make a huge bounce. Some upside targets off an oversold bounce are $5.50 to $6 a share.
Another stock in the biotechnology and drugs complex that could be poised for a sharp rebound trade is
, which develops and commercializes diagnostic tests based on microRNAs. This stock is off to a monster start in 2012, with shares up a whopping 70%.
If you take a look at the chart for Rosetta Genomics, you'll see that this stock exploded higher back in May, when it soared from $1.40 to $23.43 a share in just a few weeks. Following that monster move, shares of ROSG started to selloff and since late June the stock has done nothing but consistently make lower highs and lower lows. That type of price behavior is bearish technical action, and it drove shares of ROSG down from $17.35 to its recent low of $4.07 a share. That move toward $4 is staring to make ROSG look interesting again from the long side, since that $4 level is a previous support zone from its run back in May. Shares of ROSG are also attractive here for an oversold bounce, since its current relative strength index reading is now 26.54.
Traders should now look for long-biased trades in ROSG if it can manage to hold a trend above $4 a share with strong upside volume flows. I would consider any upside volume day that registers near or above 1,333,340 shares as bullish. Keep in mind that over 2.2 million shares traded on Wednesday after the stock closed up sharply. That was the first large-volume upside day we've seen for ROSG since back in June. If ROSG can hold its trend above $4 with strong upside volume flows, then this stock could easily see a massive bounce back toward $6.50 to $8 a share in the near future.
Another stock that looks ready to trigger a major breakout trade is
, a holding company engaged in the ocean transportation services of drybulk cargoes and crude oil worldwide through the ownership and operation of drybulk carrier vessels and oil tankers and offshore drilling services through the ownership and operation of ultra-deepwater drilling units. This stock is off to a decent start in 2012, with shares up 18% so far.
If you take a look at the chart for DryShips, you'll notice that this stock was hit hard by the bears back in March, when shares plunged from over $3.75 to its recent low of $1.91 a share. During that sharp move lower, shares of DRYS were consistently making lower highs and lower lows, which is bearish price action.
That said, shares of DRYS have now entered a range bound trend for the past three months, with shares moving between $1.91 and $2.60 a share. A move outside of that range for DRYS will likely setup its next major trend.
Traders should now look for long-biased trades in DRYS if this stock can manage to break out above some near-term overhead resistance levels at $2.38 to $2.46 a share, and then once it takes out its 200-day moving average of $2.62 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 4,352,970 shares. If we get that action soon, then DRYS could easily re-test and possibly take out its next major overhead resistance levels at $3.28 to $3.60 a share.
James River Coal
Another under-$10 stock that looks ready to trigger a major breakout trade is
James River Coal
, which is engaged in processing and selling of thermal and metallurgical coal through eight active mining complexes located throughout eastern Kentucky, southern West Virginia and southern Indiana. This stock has been crushed by the bears so far in 2012, with shares off by over 60%.
If you take a look at the chart for James River Coal, you'll see that this stock has been doing nothing but downtrending for the last six months, with shares dropping from $6.25 to its recent low of $1.68 a share. During that massive move lower, shares of JRCC have been consistently making lower highs and lower lows, which is bearish technical price action. That said, the stock has now started to rebound off its recent lows, and it's now challenging both its 50-day moving average of $2.41 and some near-term overhead resistance at $2.57 a share.
Traders should now look for long-biased trades in JRCC if it can manage to trigger a break out above both its 50-day at $2.41 a share, and above that overhead resistance level of $2.57 a share with high volume. Look for volume off a sustained move or close above those levels that hits near or above its three-month average action of 2,350,330 shares. If that breakout triggers soon, then JRCC could easily setup to spike back toward its next major overhead resistance level at $3.85 a share.
At last check, shares of JRCC have hit an intraday high today of $2.67 a share and volume is already hit 1.7 million shares. Just this morning, the company reported a smaller-than-expected quarterly loss of $25.8 million, or 74 cents per share, versus a net income of $800,000, or 2 cents per share, from a year earlier. The company said the market for power-generating coal was showing signs of a recovery following massive industry-wide cutbacks in production.
One more under-$10 name that could be setting up for higher prices is
, a precious metals company engaged in the exploration and development of mineral properties in North America. This stock is off to a bearish start in 2012, with shares off by over 50%.
If you take a look at the chart for NovaGold Resources, you'll see that this stock has been hammered by the bears, with shares plunging during the last six months from over $8 to its recent low of $3.61 a share. During that large slide lower, shares of NG have mostly been making lower highs and lower lows, which is bearish technical price action. This stock also just gapped down big a few weeks ago from $5.55 to under $4 a share. Following that gap down, shares of NG have now started to bounce off some near-term support at $3.66 a share. That move is now pushing the stock within range of a possible breakout trade.
Traders should now look for long-biased trades in NG once it manages to trigger a breakout trade above its gap down day high of $4.29 a share with high volume. Look for a sustained move or close above $4.29 a share with volume that hits near or above its three-month average action of 4 million shares. If we get that action soon, then look for NG to quickly fill some of that previous gap. It's possible that NG could bounce back toward its 50-day moving average of $5.33 a share, or possibly even higher if we see large volume flow in once NG takes out $4.29 a share.
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.