One final under-$10 name in the biotechnology and drugs complex that looks ready for a large move higher is Zalicus ( ZLCS), which discovers and develops treatments for patients suffering from pain and immuno-inflammatory diseases. This stock is off to a slow start in 2012, with shares off by over 15% so far.

This company has a major catalyst on the horizon, since it will meet with the FDA on Sept. 30 to review its phase II topline data for its rheumatoid arthritis drug Synavive. This major event could lead to a large run-up in this stock as trades pile in to get in well before any bullish FDA news.

If you take a look at the chart for Zalicus, you'll see that this stock recently made a monster run from 71 cents per share to a high of $1.62 a share. During that move, shares of Zalicus were uptrending perfectly, with the stock making higher lows and higher highs, which is bullish technical price action. Also, during that run monster upside volume flowed into the stock early on in the move. After hitting that high of $1.62, shares of ZLCS have completely reversed its uptrend and plunged down to its recent low of 95 cents per share. That said, it now looks like ZLCS is gearing up to make another monster run higher if it can clear some key moving averages.

Traders should now look for long-biased trades in ZLCS if this stock can manage to hold its recent lows near 95 to 88 cents per share, and then take out both its 200-day moving average at $1.09 and its 50-day at $1.10 a share with high volume. Look for a sustained move or close above those key moving averages with volume that's near or above its three-month average action of 2.3 million shares. If we get that action, then ZLCS should easily re-test and possibly blow right through that recent high of $1.62 a share.

One could look to buy this stock off any weakness and simply target your stops just under 88 cents per share. It's possible that ZLCS could fall down to 80 or 70 cents per share if another biotech player, Horizon Pharma ( HZNP), were to receive a bad ruling from the FDA on its rheumatoid arthritis drug today. I don't think that's going to happen for HZNP though, but it's good to be prepared. You might want to wait and see how that pans out, just in case ZLCS falls further from here, and then readjust stops. I would rather just buy this off strength once it clears both its 50-day and 200-day with heavy volume. One could simply use a stop just below 95 cents if you buy it off strength.

To see more hot under-$10 equities, check out the Stocks Under-$10 Setting Up To Explode 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 and maintains the website, 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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