Headwaters

One more under-$10 stock that's getting very close to triggering a big breakout trade is Headwaters ( HW), which provides products, technologies and services in the building products, construction materials and energy industries. This stock has been ripping higher in 2012 with shares up over 30% year-to-date.

If you take a look at the chart for Headwaters, you'll notice that this stock has been trading range bound for the past couple of months and change between around $2 on the downside and $2.91 on the upside. Usually when a stock starts to move outside of a range it will being to trend for awhile in whatever direction it breaks out into. Right now, HW has started to trigger a big breakout above the upper-end of the range with shares moving above $2.87 to $2.91 with volume.

Market players should now watch for a sustained high-volume move and close above $2.91 to signal that HW wants to trend much higher. Look for volume that's near or well above its three-month average action of 601,016 shares. At last check, volume today is already above 658,000 shares and the stock is trading at around $3 a share.

If you're bullish on HW, look to buy this stock off of weakness and simply use a mental stop right around $2.80, or $2.91 if you want to keep it tighter. If this breakout is the real deal and HW continues to trend above $2.91, then target a spike higher back towards $3.38 a share. If $3.38 is then taken out with volume, look for HW to trade into the mid-$4s in the near future.

To see more hot under-$10 stocks, including Biodel ( BIOD), Ascent Solar Technologies ( ASTI) and ZST Digital Networks ( ZSTN), check out the Stocks Under-$10 Setting Up To Trade Higher 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.

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