There isn’t a day that goes by on Wall Street when certain 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 Wednesday, including MGT Capital Investments, which ripped higher by 20 percent; Netlist, which soared 17 percent; Arabian American Development, which ripped higher by 16 percent; and Spanish Broadcasting Systems, which closed up 12.2 percent. 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 trade 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 several under-$10 stocks that look poised to potentially trade higher from current levels.
One under-$10 name that’s trading within range of triggering a big breakout trade is LiveDeal, which, together with its subsidiaries, delivers local customer acquisition services for small and medium-sized businesses. It provides online marketing Internet directory services. This stock is off to a solid start in 2012, with shares up over 50 percent.
If you take a look at the chart for LiveDeal, you’ll notice that since April, this stock has been uptrending from a low of $3.87 to a recent high of $6.90 a share. During that uptrend, shares of LiveDeal have consistently made higher lows and higher highs, which is bullish technical price action. That move has now pushed LiveDeal within range of triggering a major breakout trade.
Traders should now look for long-biased trades in LiveDeal if it can manage to trigger a break out above some near-term overhead resistance at $6.90 to $7.37 a share with high volume. Look for a sustained move or close above those levels with volume that’s near or well above its three-month average action of 54,336 shares. If we get that action soon, then this stock has a great chance of tagging $9 to $10 a share rather quickly.
Volume on Wednesday registered 111,900 shares as the stock closed up 4.5 percent to $6.07 a share. During intraday trading on Wednesday, LiveDeal hit a high of $6.66 a share. If you buy this stock in anticipation of the breakout above $6.90 to $7.37, then a good place for a stop could be some near-term support areas at $5.50 to $5.33 a share.
4. Emmis Communications
An under-$10 stock in the broadcasting and cable TV complex that looks poised for significant upside is Emmis Communications, a diversified media company principally focused on radio broadcasting. This stock is off to a monster start in 2012, with shares up over 110 percent.
If you take a look at the chart for Emmis Communications, you’ll notice that this stock triggered a major breakout recently once it moved above some past overhead resistance at 90 cents to $1 a share with massive volume. That breakout sparked a huge spike higher in Emmis Communications to its recent high of $1.72 a share. Since hitting that high, Emmis Communications has pulled back to $1.16 a share and subsequently started to spike higher again towards its current price of around $1.40 a share. That move is pushing Emmis Communications within range of triggering another big breakout trade.
Market players should now look for long-biased trades in Emmis Communications if it can manage to trigger a break out trade above some near-term overhead resistance at $1.56 to $1.72 a share with high-volume. Look for volume on a sustained move or close above those levels that register near or well above its three-month average action of 242,903 shares. If that breakout triggers soon, then Emmis Communications can easily make a move at its next significant overhead resistance levels at $2.20 to $2.45 a share.
If you’re bullish on Emmis Communications, then one could anticipate the breakout and look to buy this stock off any noticeable weakness. I would use a stop at around $1.30 to $1.16 a share in case that breakout never triggers and the stock sells off more in the near term. The bottom line, this stock is still within its uptrend, so if that breakout triggers soon I expect to see much more upside.
3. Isis Pharmaceuticals
An under-$10 name in the biotechnology and drugs complex that's trading within range of a major breakout trade is Isis Pharmaceuticals, which is engaged in antisense technology, exploiting a drug discovery platform to create a pipeline of drugs. This stock is off to a decent start in 2012, with shares up over 25 percent.
If you take a look at the chart for Isis Pharmaceuticals, you’ll see that this stock has been trading between $7 and $9.30 a share for the past six months. During that timeframe, Isis has tested that $9.30 area a number of times, but has failed to take it out. This stock is now making another attempt at finally breaking out above $9.30 a share. In fact, on Wednesday Isis hit an intraday high of $9.37 a share before closing at $9.23. That $9.37 level is past overhead resistance from July of 2011.
Market players should now look for long-biased trades in Isis if it can manage to trigger a break out above some near-term overhead resistance levels at $9.28 to $9.37 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 595,523 shares. If we get that action soon, then Isis could easily continue its uptrend towards $11 to $13 a share in the near future.
Keep in mind that Isis sports a decent short interest. The current short interest as a percentage of the float for Isis is 10.4 percent. If that breakout triggers soon, then this stock could see a solid short-coveringrally. I would look to buy this stock off strength once that breakout triggers with volume, and use a stop at around $9 to $8.75 a share in case the breakout fails to hold.
2. Idenix Pharmaceuticals
Another under-$10 stock that looks ready to trigger a major breakout trade is Idenix Pharmaceuticals. This is a biopharmaceutical company engaged in the discovery and development of drugs for the treatment of human viral diseases with operations in the U.S. and Europe. This stock has been trending higher so far in 2012 with shares up over 20 percent.
On Wednesday, a William Blair analyst said that Idenix Pharmaceuticals could report some important good news over the next few months. The firm said the following events could move this stock higher: More clinical trial data on IDX184, its most advanced drug candidate; a new study of a regimen that combines IDX184 and another experimental drug; clinical trial data on a second drug candidate called IDX719; and the start of clinical trials of a third hepatitis C medication, IDX19368.
If you take a look at the chart for Idenix Pharmaceuticals you’ll notice that this stock was hammered off its January high of $15.25 to a recent low of $7.17 a share. After tagging that low, Idenix Pharmaceuticals has rebounded and moved back above its 200-day moving average and within range of its 50-day moving average of $9.25 a share. That rebound has now pushed Idenix Pharmaceuticals within range of triggering a major breakout trade.
Market players should now look for long-biased trades in Idenix Pharmaceuticals if it can manage to trigger a break out above its 50-day moving average of $9.25 a share with high-volume. That $9.25 area is also a previous overhead resistance as well as its 50-day moving average. Look for volume on a sustained move or close above that level that registers near or well above its three-month average action of 1.6 million shares.
This stock is a favorite target of the short-sellers. The current short interest as a percentage of the float for Idenix Pharmaceuticals is very high at 15.7 percent. If that breakout above $9.25 triggers soon, then Idenix Pharmaceuticals could easily short-squeeze back towards its next significant overhead resistance levels at $11 to $12.68 a share, if not even higher. Traders should look to buy this off of high-volume strength above $9.25 and simply use a stop around its 200-day moving average of $8.20 a share, or much tighter depending on your position size.
1. Sunesis Pharmaceuticals
One more under-$10 stock that’s setting up for a breakout trade is Sunesis Pharmaceuticals, a biopharmaceutical company focused on the development and commercialization of new oncology therapeutics for the treatment of hematologic and solid tumor cancers. This is one of the hottest stocks in the market so far in 2012, with shares up over 140 percent.
If you take a look at the chart for Sunesis Pharmaceuticals, you’ll notice that this stock has been uptrending strong for the past six months from a low of $1.14 to a recent high of $3.19 a share. During that move, Sunesis Pharmaceuticals has consistently made higher lows and higher highs, which is bullish price action. This stock recently pulled back off that $3.19 high to around its 50-day moving average of $2.68 a share, and its subsequently started to bounce off that 50-day. This could be signaling that Sunesis Pharmaceuticals is done selling off and is now going to make another run at breaking out to new highs.
Traders should now look for long-biased trades in Sunesis Pharmaceuticals if it can manage to clear some near-term overhead resistance at $3 to $3.19 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 453,774 shares. If we get that move soon, then Sunesis Pharmaceuticals should easily tag its next significant overhead resistance level at $3.69 a share. If that $3.69 level is then taken out with volume, this could have tremendous upside towards $5 a share.
This is another heavily shorted stock since 11.8 percent of the float for Sunesis Pharmaceuticals is sold short by the bears. Traders can look to buy this stock in anticipation of the $3 to $3.19 breakout, and simply use a stop right below the 50-day moving average at around $2.55 to $2.52 a share. If that breakout does trigger soon, then Sunesis Pharmaceuticals has a great chance of experiencing a sizable short-squeeze that pushes it to new 52-week highs.
One last thing about Sunesis Pharmaceuticals, this stock has a major catalyst on the horizon. The company will be presenting Phase 3 data on Vosaroxin at the American Society of Clinical Oncology’s annual conference on June 4. Vosaroxin is designed for the treatment of Acute myeloid leukemia AML. The company recently was granted orphan drug designation for Vosaroxin by the European Commission, so things look bright for this drug.
—By Roberto Pedone, Contributor, TheStreet.com
Additional Views: Idenix Pharmaceuticals Rises on Analyst Upgrade
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TheStreet’s editorial policy prohibits staff editors, reporters, and analysts from holding positions in any individual stocks. Disclosure information was unavailable for Roberto Pedone.