Ariad Pharmaceuticals

Another under-$10 stock to consider is Ariad Pharmaceuticals ( ARIA), a biopharmaceutical company focused on the discovery and development of drugs to provide therapeutic intervention in treating human diseases at the cellular level. This stock has been a market leader in 2011, with shares up over 80%.

If you take a look at the chart for Ariad Pharmaceuticals, you'll see that this stock has found big buying support at around $7.50 to $7.70 a share a number of times during the past six months. Every time the stock has hit those levels, it's bounced significantly higher and it has been a great buying opportunity.

Now the stock is approaching some levels that will trigger another big breakout if it can manage to trade above them. The first level to watch is the 50-day moving average at $9.58 a share. The second level is some major overhead resistance at around $10.70 a share. If both of those levels are taken out to the upside in the near future, then I think this stock can make another run at its July highs of $13.50 a share.

>>8 Biotech Stocks to Watch

Market-players should now watch for a breakout for a move above those levels on heavy volume. Look for volume that's tracking in close to or above its three-month average action of 3.86 million shares.

One could be a buyer of this stock on any notable weakness in anticipation of the breakout, or you could just wait for the breakout and then get long off strength. If you buy off weakness I would use a stop just below $9 a share. I would look to add to any long position once this stock takes out $10.70 with volume.

This is another heavily shorted stock with over 12% of the float sold short by the bears. This high short interest could fuel a sizable short-squeeze if we can get back above the 50-day and then above $10.70 in the coming days or weeks.

Ariad shows up on a list of Hot Biotech trades for Second-Half 2011.

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