Hot Stocks to Trade under $5: Bullish Chart Analysis

After scouring my stock screener for potential stocks to breakout over the coming days and weeks, I have encountered a few interesting charts to write about.  Most of these will be purely chart-based analysis as these are predominately potential trades over the days/weeks rather than long-term investments.  My current portfolio already has solid positions for long-term but the 20% I allocate for trades is often free due to the speed of moving in and out of stocks.  With that being said, I’m going to cover a few potential stocks, under $5, that could turn out to be good trades if the charts strengthen tomorrow rather than deteriorates.

E-Trade (ETFC)

This chart is interesting due to the end of day movement which created some positive chart indicators.  The chart was down at the beginning of the day on very heavy volume and started to recover during the final hour of trading with more heavy volume.  What I like about this chart is the strong uptrend in the A/D line at the end of the day as well as the positive CMF (15) for the majority of the day.  Due to the RSI starting to reach overbought territory, I’d look for a pullback that resets the RSI but doesn’t negatively affect the A/D line too much, if any.  That would be a very bullish sign and I’d look to add a position over three different price points per my style of trading explained in Part 1 of A Daytraders Strategy.  With the stock trading down only a penny in afterhours trading, I’d make sure Friday morning doesn’t have another selloff to where you are catching a falling knife as I expected ETFC to be green during afterhours due to the strong close.  I’d rather see the dust settle and some sideways action before I consider adding a position so I can verify any strong indicators first which are trending rather than quick reversals which can lose you money fast.  Ideally, I’d like to see the RSI at least under 50 before I consider adding so I’ll be paying close attention to the action in the opening minutes Friday.

Synovus Financial Corp (SNV)

SNV is another interesting chart setup but we need the RSI to take a breather under 50 first, preferably 40 or lower before adding.  The A/D line is in a strong uptrend and it could help us break past any resistance but if the financial sector is not under pressure Friday, we might not get a chance to buy safely without trying to catch it running up in the morning.  This is a stock I’ll watch for a pullback so the RSI can reset but if it doesn’t, I will just have to move on to another stock as one of my rules is to not chase a stock.

The CMF (15) was very positive throughout the day after the selloff but saw some pressure during the final hour of trading.  This could be just a small pullback or this could continue and possibly deteriorate the chart indicators come morning.  If the A/D line trends down strong at all, I will move on elsewhere as that would deteriorate the chart to the point of making it too risky of a play for my taste.

Sirius XM (SIRI)

SIRI is favorite position of mine and while I have a long term position in it, I still trade around that core position to lock in realized profits as often as I can.  I took some profits over $1 and am slowly buying back on dips now in anticipation of the next leg-up.  The A/D line is not strong but it is trending north which is obviously positive.  If we continue to rise up without a nice pullback to reset the chart indicators while keeping the A/D line positive, we might not have a lot of room to run-up in the short-term so I will wait to add.  The RSI is starting to get high over the yearly chart as well.  This doesn’t necessarily mean we can’t increase from here, it just means it’s not as likely and a pullback towards $1.12 should be healthy for the chart and create the ability to add cheap shares for the next move up.  Earnings are expected to be positive so I am not concerned with any negative news happening anytime soon.  However, if the PPS doesn’t pullback and we continue to trend north towards earnings, we are setting ourselves up for a sell-the-news reaction come earnings so be prudent on where you add and don’t be shocked if we pullback on positive earnings.  As a long-term investment, I still like this price though.

GOIG

A trade I initiated this week was in a penny stock which we’ve been watching for a while now in the Live Stock Market Chat.  GOIG is a stock I can only find myself trading as I haven’t the least bit of trust in the CEO as I’ve outlined before so no need to belabor on that point.   The latest wild swings in the PPS seem to be driven by the Market Maker SEAB.  When SEAB moves to bid, the price tends to start running up and it tends to fall sharply when SEAB starts to sell and moves away from the bid (on the Level 2 quote).   This is not a stock I would trade if I did not have Level 2 quotes as this gives us the edge in knowing what is about to happen.  SEAB came aboard and initiated the latest run-up to $.06 and I hate to break it to all of you long-term investors with wishful thinking but this surely wasn’t some run-up cause people believe in the company else we would never have fallen all the way back down to where we started, as I accurately predicted.  SEAB is the trend setter in this stock for the time being and until SEAB disappears, it is a stock I will continue to watch and successfully trade.  He seems to have accumulated a good amount of shares again and is slowly selling some off from what I can tell.  Today, he was on the bid the majority of the day which is why we saw the PPS increase.  A resistance around $.03 prevented SEAB from easily pushing past it so we saw some accumulation between $.025 and .029 instead.  I do not know SEAB’s gameplan yet but from what I can tell from watching the L2, it seems he still is holding a good amount of shares at the moment which makes me feel safe.  With that being said, I would be shocked if he did not try to inflate the price some more before he sells into it again similar to how it fell hard from the latest run once touching $.06.  My speculative theory is SEAB is attempting to have others commit capital to these higher prices so he can easily run it higher with momentum than sell the majority of his shares at an inflated price before everyone else does.  Time will tell how accurate that is this time around.

The biggest noticeable concern of mine is how the A/D line fell sharply after the strong selloff from $.06 the other week but we have recovered since.  Now, the A/D line is just below the level where we started our run-up towards $.06 the other week.  Until I notice SEAB starting to sell more than buying, I will look to hold my position expecting another large run-up to happen.  This time SEAB seems much more patient though so this could very well be a trade that last a few weeks rather than a few days.  I’m currently in the green for this trade so I’m unlikely to add more to my position unless we dip below my cost average.

As always, do your own homework to see if you agree.  Chart reading is definitely an art rather than an exact science and a poorly trading sector or bad news can quickly deteriorate even the strongest of charts.  Get some rest and I’ll see you in the morning.  Good luck out there.

Mike

At the time of publication, Kudrna was Long GOIG and SIRI but positions can change at any time.