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Small Cap Trading Frenzy Drives Penny Stocks In October

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Speculative fervor took a boost in September trading as the Russell 2000 small cap index broke into a bull market, driving penny stocks, according to Investopedia. The top two performers in September’s penny stocks to watch list, RADA Electronics Industries, Ltd. and 22nd Century Group, Inc., sustained their top positions in October, an unusual occurrence.

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Three of the other top September stocks, Intrepid Potash, Inc., Moleculin Biotech, Inc. and Zynga, Inc., gained higher positions in October, reflecting the continued strength of biotech and technology.

The technical conditions supporting these equities should persist through the fourth quarter and into 2018, portending multi-year highs for many of these issues.

Source: Investopedia

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1. RADA Electronic Industries, Ltd. (RADA)

RADA Electronic Industries, Ltd. (RADA), a defense electronics system of advanced electronic systems for airborne and land applications, sustained its top spot for the second consecutive month.

RADA Electronics broke out to a 2-year high during the period.

After joining Nasdaq in the 1990s, the stock suffered a multi-decade decline. It ground out a series of lower highs and lows through January 2016’s all-time 54-cent low.

The stock spent 16 months moving sideways in a narrow basing pattern before turning higher in May 2017 and rallying back to 2016 resistance at $1.78.

The stock cleared major resistance at $2.25 in July 2017, entering an uptrend that’s now filling the July 2015 gap between $2.50 and $3.60. Buying pressure remains strong, raising odds it will test 2015 resistance near $4.00.

Following capital raising activity with institutional investors, the company recently converted loans to equity and increased its net cash position by $13.3 million while reducing ongoing annual interest payments by approximately $250,000.

On Aug. 21, RADA completed a $10 million capital raise under an existing shelf prospectus, issuing 4,604,500 shares. The investors included leading Israeli institutional investors, such as Yelin-Lapidot Investment House, More Investment House, Noked Capital, and The Phoenix Insurance Company.

From Aug. 17 until Sept. 5, DBSI, the company’s primary shareholder, exercised warrants and converted a loan to equity. It sold a portion of the shares gained to institutional investors such as Optimus Fund and others. On a net basis over the period, DBSI increased its shareholding in RADA by 1,168,782 shares to approximately 12.2 million shares, representing 35% of the company’s equity on a fully diluted basis.

Source: Investopedia

2. 22nd Century Group, Inc. (XXII)

22nd Century Group, Inc. (XXII), a plant biotechnology company that provides tobacco harm reduction and development of proprietary hemp/cannabis strains, rose from the number three spot in August to number two in September. The stock posted its highest high since July 2014.

In 2013, the stock broke out above multi-year resistance near $1.50, rallying to a record high a few months later at $6.36. It then began a persistent decline through August 2015 before finding support at 56 cents, followed by a bounce to $1.75.

The stock traded within these boundaries for 22 months, bouncing at support three times and reversing at resistance in equal measure. The price returned to that level a fourth time, improving odds for a breakout that could double the price in the year’s second half.

22nd Century Group found support near 70 cents in the second half of the year, testing that level three times ahead of a March 2017 uptick that has now reached ranged resistance. A breakout over $2.00 should draw strong buying interest favoring a high percentage rally back to its three-year high.

The stock hit its highest high since 2014 on August 7, 2017, and pulled back to the 20-day SMA, testing support around $2.00. This price level could offer a platform for continued upside that reaches longer-term resistance near $4.00.

The stock joined the Russell Microcap Index four months ago, when FTSE Russell reconstituted its U.S. and global equity indexes.

Membership in the Russell Microcap Index signifies automatic inclusion in the value style indexes. FTSE Russell determines membership for its Russell indexes primarily by objective, market-capitalization rankings and style attributes.

22nd Century Group focuses on genetic engineering and plant breeding that allows the increase or decrease of nicotine levels in tobacco plants and cannabinoids levels in cannabis plants. Its primary goal for tobacco is to lessen the harm caused by smoking. The primary goal for cannabis is to develop proprietary hemp/cannabis strains for new medicines and agricultural crops.

Source: Investopedia

3. Intrepid Potash, Inc. (IPI)

Intrepid Potash, Inc., the number four penny stock to watch in September, rallied 24% to a 23-month high, jumping to the number three spot in October, displacing Trilogy Metals, Inc.

The only U.S. producer of muriate of potash, Intrepid Potash moved from the number nine spot in August to number four in September.

In 2010 the stock suffered a decline that reached an all-time low at 65 cents in March 2016. The stock then rebounded above $1.50 in June before a December 2016 breakout that soon stalled at $3.04.

A stair step bounce reached a 21-month high at $3.93 on Aug. 3, 2017, giving way to a rectangular consolidation with support near $3.15.

Intrepid generated a second quarter net loss of $5.9 million, or $0.05 per share, delivering a first half net loss of $19.6 million, or $0.19 per share. This marked an improvement over the net losses of $13.4 million, or $0.18 per share, and $31.8 million or $0.42 per share, in the second quarter and first half of 2016, respectively.

Improvements in year-over-year net loss per share were driven in part by a gain in outstanding shares from the March 2017 secondary offering.

Consolidated gross margin advanced to $3.7 million and $0.8 million in the second quarter and first half of 2017, respectively, against the prior year. Improvements were due to lower cost solar potash production and higher average net realized potash pricing that offset lower average net realized sales prices for the product, Trio.

Cash provided by operating activities rose year-over-year to $9.7 million and $11.5 million for the second quarter and first half of 2017, respectively. Increased cash flow was due to strong spring demand, increased potash prices, and the elimination of costlier conventionally mined potash from the production profile.

Source: Investopedia

4. Moleculin Biotech, Inc. (MBRX)

Moleculin Biotech, Inc. (MBRX), the number seven penny stock to watch in September, moved to the number four spot in October,

The stock went public in June 2016 at $8.99 and began a downtrend that continued to post new lows into May 2017 before it bottomed out at 71 cents. A June test held support, ahead of an uptrend that completed a high volume base breakout which saw the stock rally to an 8-month high at $3.75 by the month’s end.

A pullback in July found support at the 50-day EMA, causing a bounce to range resistance, followed by a decline that could attract strong buying and continued upside toward $6.00.

The company recorded a net loss of $3.3 million in the second quarter of 2017 for the change in fair value on revaluation of its warrant liability associated with warrants issued in conjunction with its stock offering in February 2017.

The company recorded a gain in the second quarter of 2017 of $1.2 million related to expiration of warrants issued as part of the February 2017 stock offering.

The net loss for the three months ended June 30, 2017 was $2.3 million, including non-cash income of $1.2 million related to a gain recognized on the expiration of warrants, which was offset by a non-cash expense of approximately $3.3 million on the change in fair value of the company’s warrant liability. The net loss also included additional noncash charges for $0.1 million for stock based compensation and other stock based expenses.

As of June 30, 2017, the company had $9.3 million in cash and cash equivalents compared to $5.0 million at Dec. 31, 2016. Through June 30, 2017, $3.2 million in cash was received from the exercise of warrants issued in the February public offering. Cash used in operations was $3.4 million for the period ending June 30, 2017.

Source: Investopedia

5. Zynga, Inc. (ZNGA)

Zynga, Inc., the number 10 penny stock to watch in September, moved up to the number five spot in October.

A company whose mission is to connect the world with games, Zynga went public in December of 2011. The stock reached an all-time high at $15.91 in March 2012, then dropped in a straight line to $2.09 in November, ahead of a bounce that stalled near $6.00 in 2014.

The stock found support at the 2012 low in the first quarter of 2016, then turned higher, rallying to a three-year high in June 2017. Price action since then made a symmetrical triangle on top of the 200-week EMA.

The company achieved record mobile revenue of $179.9 million and bookings of $181.6 million in the second quarter, with revenue up 30% year-over-year and bookings up 33% year-over-year.

Mobile commerce now represents 86% of total revenue and 87% of total bookings, respectively. Mobile online game revenue was up 39% year-over-year, and mobile user pay bookings were up 45% year-over-year. The company’s mobile audience reached 19 million average daily active users, up 28% year-over-year and the strongest since Q4 2014.

GAAP operating expenses for the quarter were 67% of revenue – down from 73% of revenue for the same period in the second quarter of 2016, while non-GAAP operating expenses were 58% of bookings – down from 68% of bookings a year ago.

The company recently delivered its first quarter of GAAP pre-tax profit since Q4 2012, due in part to progress in improving operating leverage and the lowest quarter of stock-based compensation expense in more than three years.

The company generated operating cash flow of $37.8 million, which was the best quarterly performance in five years.

Source: Investopedia

6. Xplore Technologies, Corp. (XPLR)

Xplore Technologies, Corp., which manufactures tablet PCs, declined from a high at $100 in 2010 to $3.05 in 2013. The stock entered a recovery wave that stalled near $7.50 in 2014, before failing to test that level in 2015. The stock collapsed in June 2016 before finding support at an all-time low at $1.54 in June 2017.

The stock recovered above the 2013 low in August, then fell into a symmetrical triangle which could yield a vigorous rally up to 2015 resistance at $6.15 in the next few months. A buying spike above $3.70 could set that recovery into motion.

The company’s mobility solutions are designed for the energy, utilities, telecommunications, military, manufacturing, distribution, public safety, health care, government and field service sectors.

For fiscal quarter one for 2018, ending June 30, 2017, the company reported revenue of $20 million, a 21% gain year over year and a 30.9% gross margin. EBITDA was $839,000 compared to $1.1 million in the first quarter of 2017. GAAP net income was $239,000.

Source: Investopedia

7. Plug Power, Inc. (PLUG)

Plug Power, Inc., a manufacturer of fuel cells, sold off from a split-adjusted $1,565 in 2000 to an all-time low at 12-cents in 2013. The stock turned higher in March 2014, but stalled at $11.72 before falling to 83 cents in March 2017. In the last six months, the price spiked to $2.70, before suffering another fall. A breakout should target the May 2014 low at $3.65, which would mark a high percentage rally from the current level.

The Plug Power plant in Latham, N.Y. has ramped up manufacturing to deliver third quarter production, which will be the largest quarter in the company’s history, with an estimated 10 GenKey hydrogen fuel sites and nearly 3,000 GenDrive units to be deployed.

In addition to the ramp up, the second quarter 2017 saw continued efforts to improve he business model, boost margins and expand its customer base.

The company kicked off the second quarter signing a strategic GenKey agreement with Amazon, which will generate about $70 million in revenue for 2017. On July 21, the company announced an agreement with Walmart to provide GenKey hydrogen fuel cell energy solutions to 30 more sites in North America over the next three years. Ten of these sites were contracted and scheduled to be finished by the end of 2017.

Source: Investopedia

8. Durect, Corp. (DRRX)

Durect, Corp., a biopharmaceutical company developing therapeutics based on its epigenetic regulator program and proprietary drug delivery platforms, posted an all-time low of 61 cents in November 2012 before embarking on an uptrend that topped out at $3.42 in June 2015. A subsequent decline unfolded in multiple waves, ending at a 2-year low in April 2017 followed by a recovery that stalled at resistance near $2.00 in July.

The stock has since recovered, finding support at the 50-day EMA and challenging the second quarter high.

In mid October, the company reported that Persist, the Phase 3 clinical trial for its Posimir pharmaceutical, did not meet its primary efficacy endpoint of reduction in pain on movement over the first 48 hours after surgery as compared to standard bupivacaine HCl. While results trended in favor of Posimir versus the comparator, they did not achieve statistical significance. Posimir is an investigational drug candidate being developed for the treatment of post-surgical pain.

Posimir is an investigational extended-release depot utilizing Durect’s patented Saber technology intended to continuously deliver bupivacaine to the surgical site for 72 hours to provide up to three days of continuous pain relief after surgery. Posimir is a drug candidate under development and has not been approved for commercialization by the U.S. Food and Drug Administration or other health authorities.

Source: Investopedia

9. Microvision, Inc. (MVIS)

Microvision, Inc., a provider of ultra-miniature projection display and sensing technology, topped out at a split-adjusted $548 in 2000 before entering a downtrend that continued into a 2012 low at $1.11.

A 2013 bounce to $3.49 carved posted resistance, ahead of multiple reversals that have outlined a rectangular basing pattern. The stock rebounded in October 2016, entering an uptrend that’s has reached the upper half of its persistent trading range. The stock broke out to a 22-month high in September and has since settled near $2.75, signaling an upside that could reach the 2015 high at $4.23.

The company announced in August that it sold 1.5 million unregistered shares to a private investor who is also a current shareholder at a price of $2.10 per share, for aggregate consideration of $3.15 million. Microvision intends to use the proceeds from the issuance for general corporate purposes.

Microvision’s display and sensing solution can be adapted to an array of applications and form factors. MicroVision’s business model and product line offering includes display and sensing engines, licensing its patented technology and selling components to licensees for incorporation into their scanning engines.

In September, Microvision and WPG Holdings, a distributor of semiconductor components in Asia, entered into an agreement for distribution of Microvision’s line of PicoP scanning engines across Asia.

Source: Investopedia

10. BioDelivery Science International, Inc. (BDSI)

BioDelivery Science International, Inc., a pharmaceutical company with a focus on pain management, broke above 7-year resistance at $8.26 in 2014, then rallied to an all-time high at $18.48 a few months later. A pullback into 2015 triggered a failed breakout, delivering a decline that continued into a November 4-year low at $1.50.

The stock tested that level in April 2017 and turned higher, supporting an uptrend to a 52-week high at $3.60 in July. The stock fell in September, finding support at the 200-day EMA. It could bounce back to the third quarter high.

The company announced in September that Health Canada granted market authorization to formally transfer the Drug Identification Number (DIN) ownership of Belbuca (buprenorphine) buccal film in Canada to BDSI’s commercial partner, Purdue Pharma in Canada. This approval triggers a milestone payment to BDSI.

Belbua incorporates BDSI’s BioErodible MucoAdhesive (BEMA) drug delivery technology and is the only long-acting opioid that uses buccal film technology to deliver buprenorphine for patients living with chronic pain. Belbuca was approved in Canada in June 2017 for the management of pain severe enough to require daily, continuous, long-term treatment and that is opioid-responsive and for which alternative options are inadequate.

Technology and biotechnology highlight October’s penny stock list while the recent Russell-2000 breakout should benefit an assortment of low-priced stocks in the fourth quarter. Nevertheless, this group remains speculative, requiring aggressive risk management.

Penny stocks require investors to make some guesses about the future. Very few such stocks have a sufficient track record to indicate they will prosper. At the same time, the stocks on this list are in significant industries and have the potential to be vital players in their industries.

Featured image courtesy of Shutterstock.

 

 

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Trade Recommendation: Buy EVHC and EQT on Selling Exhaustion

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The S&P 500 Index (SPX) continues its ascent as it knocks on immediate resistance at 2,660. Currently, the index is traversing overbought territory. Ideally, it takes a dip now and fill the gap between 2,640 and 2,646 which was created on December 8, 2017. That should take the RSI below 70, and give the index room to break 2,660 by next week.   

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Nevertheless, SPX remains aggressively bullish as long as it is above 2,600. For this edition, let’s look at stocks that appears to have found their bottom.

EVHC – Envision Corporation

EVHC has suffered massive losses in value since it made its 3-year high of 137.57 back in 2015. The stock went on a downtrend when it created a bearish pattern and failed to hold critical support at 110. Bears sent it back to as low as 23.77 which is an astronomical 82.72% drop in value.  It’s all gloom and doom, but the charts show a promising picture.

Technical analysis show that the stock may have recently bottomed out. EVHC generated a massive volume of 50.45 million on November 1st which was coupled by a big gap down. In addition, volume has been decreasing day by day. Lastly, weekly RSI shows recovery from extreme overselling. These indicators tell us that the stock may have found its new support level.

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The strategy is to trade the range by buying as close to 25 and selling as close to 80. Keep in mind, the stock has not flashed any sign of reversal so officially, it’s still on a downtrend. However, there’s opportunity to generate profits here by taking advantage of the consolidation period. Buy low and sell high.

Weekly EVHC Chart

Monthly EVHC Chart

As of December 11, 2017 close, the stock is at 32.90.

Summary of Strategy

Buy: between 25 and 35

Support: 25

Target: 80 but consider lightening positions at 45 and 60

Stop: A close below 23.77 negates this trade call

EQT – EQT Corporation

Just like EVHC, EQT suffered massive losses in value after it dropped to 47.10 from a 5-year high of 111.47. The stock went on a downtrend when critical support at 82 broke down. It lost 57.75% in value before the bulls took strong action and defended support at 50. Since then, EQT has shown signs of life which may prove to be profitable to those who invest in the stock.

Technical analysis show that the stock has found its bottom at 50. Weekly chart reveal that the stock generated volume of over 60 million on June when the average volume was just below 13 million. This signals selling exhaustion. During the same period, the stock created a hammer which indicates the presence of buyers at 50. More importantly, EQT has tested and successfully defended support level at 50 twice already. This increases the probability that the stock will no longer go below that level.

Similar to EVHC, the strategy here is to trade the range. Buy between 50 and 60 with the intention of selling at 80. As always, buy low and sell high.

Weekly EQT Chart

Monthly EQT Chart

As of December 11, 2017 close, the stock is at 57.13.

Summary of Strategy

Buy: between 50 and 60

Support: 50

Target: 80

Stop: A close below 50 invalidates this trade call

Featured image courtesy of Shutterstock.

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Trade Recommendation: Ride ETN and EW on Breakout

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The S&P 500 Index (SPX) flexed its muscles on Friday, December 8, as it gapped up, opening nearly 10 points higher than its previous close. With volume going below its 20-day average, the market’s telling us that sellers are running out of ammunition. The slowdown in selling has enabled bulls to push the index up, closing almost the same level as the day’s high.

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The price action on December 8 affirms our bullish view. With that sentiment, let’s continue trading stocks that are on the verge of breaking out.

ETN – Eaton Corporation

The stock has suffered as much as a 42.25% loss in value during the course of its 3-year downtrend. It almost touched a high of 80 back in 2014, but bears claimed that level and sent the stock to as low as 46.19 in 2016. Fortunately for the bulls, the stock respected that support and used it to generate one higher low after another. The consecutive rallies has given ETN momentum to beach resistance at 80, albeit briefly.

While the bears continue to own that resistance level, technical analysis reveals that it’s only a matter of time before bulls conquer that level with conviction. Weekly and monthly charts reveal a large bullish reversal pattern that can take ETN to a new five-year high. Breach 80 with heavy volume of 11 million in the daily chart should attract momentum traders and give the stock a clear path to our target of 120. More importantly, breakout of this three-year resistance level should restart the uptrend for ETN.

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Weekly ETN Chart

Monthly ETN Chart

Summary of Strategy

Buy: breach of 80 with volume of 11 million

Support: 76 and 72

Target: 120

Stop: A close below 72 negates this trade call.

EW – Edwards LifeSciences Corporation

While EW technically remains in an uptrend, it suffered as much as a 33.37% loss in value as it went through a massive corrective phase. It went as high as 121.75 in late 2016 before getting sent back by bears to as low as 81.12 in under two months. Just like ETN, however, EW used that support level to rally and post a series of higher lows. Currently, the stock is threatening to finally breach resistance at 120.

Technical analysis reveals a large bullish continuation pattern that can signal the end of EW’s corrective phase. In addition, indicators show that bulls are in a good position to take out 120. The last candlestick on the weekly chart is a hammer which indicates the presence of buyers above 110. In addition, RSI shows that the stock is far from oversold territory, giving it room to make a move up. Lastly, volume has picked up which hints that a significant number of market participants are showing interest in the stock.

The strategy is to wait for the chart to break resistance at 120 with over 9 million in volume in the daily chart. Breach of this level will attract momentum traders and may lift the stock to our target of 160. It is also important to note that there is no known resistance above 120. Hence, the stock may reach our target without much of a struggle.

Weekly EW Chart

Monthly EW Chart

Summary of Strategy

Buy: breach of 120 with volume of 9 million

Support: 112 and 110

Target: 160

Stop: A close below 10 invalidates this trade view.

Featured image courtesy of Shutterstock.

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Trade Recommendation: Buy BBY, ZNH, CLX, and USCR

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The S&P 500 made a new intraday lifetime high on Monday of last week, but it could not sustain the gains. Over the next two days, the index declined, however, the bulls stepped in at 2624.75 levels, as the news flow turned positive. The index gained ground in the last two days of the week and made a new lifetime high on a closing basis.

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Important points

  1. Bulls continue to buy the dips, which suggests further upside to the US markets
  2. We want to ride the move higher through our trading positions
  3. Buy BBY, ZNH, CLX, and USCR

We believe that the bulls will want to end the year on a strong note, hence, the rally is likely to continue in the remaining few days of the year. After all, the index has closed positively in all the first eleven months of the year.

We, therefore, continue to look for trading opportunities on the long side. Notwithstanding, at the current levels, any adverse news, especially on the tax front can start a sharp fall. Therefore, please use a trailing stop loss to protect the position once it moves in our favor.

BBY – Buy 64.2, SL 60, Target 71

Weekly chart

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The stock had risen to a high of $59.5 in April 2006, following which it plunged to $12 by end-2012. Since then, the stock has been on a path to recovery. In May of this year, the stock made a new lifetime high, however, it could not sustain the levels. The bears again pushed the stock lower. In the last few months, the stock made a bearish head and shoulders pattern on the weekly chart.

However, last week, the stock broke out to new highs, thereby invalidating the bearish pattern. This is a bullish development, which suggests further upside. Let’s see the critical levels on it.

Daily chart

On the daily chart, we find that the stock had been range bound since end-May of this year, between $53 on the lower end and $61.95 on the upper end. A couple of attempts to break out of the range faced stiff resistance from the bears. However, on Friday, the stock broke out to new highs with force. This is a bullish sign. We expect the stock to now move towards its pattern target of $71. Hence, we suggest buying it at $64.2, above Friday’s intraday highs with a SL of $60.

ZNH – Buy 46.5, SL 42, Target 53, 59

Weekly chart

The stock has not done much in the past decade. After rallying to dizzying heights a decade earlier, the stock plunged during the global financial crisis. Thereafter, it has been in recovery mode, but it has not been able to make new lifetime highs. Nevertheless, the pattern suggests that a retest of the highs is possible. Therefore, we want to enter this trade.

Daily chart

The stock had been range-bound between $25.6 and $42.6 for about two years. It broke out of the range on November 20. Thereafter, the bulls successfully held on to the $42.6 levels during the pullback. This shows demand for the stock at higher levels. The pattern target following the breakout of the range is $59. Therefore, we propose buying the stock at the current levels of $46.5 with a stop loss of $42.

There is a small resistance at the $53 mark, where traders can book partial profits if the stock struggles to break out of it.

CLX – Buy 146, SL 138, Target 168

Weekly chart

The stock has been in a long-term uptrend since 2009. It entered a period of consolidation/correction in July of last year. Since then, $140.5 had been acting as a stiff resistance. Three attempts to break out of the overhead resistance failed. The stock formed a bullish ascending triangle pattern and the bulls broke out above the overhead resistance last week. Hence, we want to buy the stock, as we expect it to move higher.

Daily chart

The bulls managed to breakout of the ascending triangle pattern on December 04 and have managed to sustain above $140.5 levels for a week, which is a bullish sign. The stock now has a pattern target of $168. Therefore, we want to buy 50% of the allocation at $146 and the rest on a successful retest of the $141 levels. Our stop loss for the trade can be kept at $138. We don’t want to hang on to the stock if it falls back into the triangle.

USCR – Buy 85.25, SL 80, Target 92

Weekly chart

The stock has been in an uptrend since 2012. It has been rising inside an ascending channel for more than a year. Just two weeks back, it had fallen to the trendline support of the channel, which held. We can now expect the stock to rally towards the resistance line of the channel, which is at the $92 levels.

Daily chart

On the daily chart, we find that the stock had been facing stiff resistance at the $80 mark. It broke out of the overhead resistance in end-August of this year, but could not sustain above it. Subsequently, it declined to the lower end of the range at $70. On November 30, the stock again broke out of $80 levels.

The bears again attempted to stem the rally at the $84 levels. However, the stock found support at $80 and rallied to new highs on Friday of last week. We, now, expect the uptrend to continue. Therefore, we recommend a buy at the current levels of $85.25, with a stop loss of $80 and a target objective of $92.

Featured image courtesy of Shutterstock. 

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