Latest small-cap and biotech breakouts reflect enhanced risk appetite for more speculative plays, including single-digit stocks that have bot routinely overlooked by hedge funds and retail investors since the November 2018 election. Many of thesis issues have turned sharply higher, underpinned by a rotation out of the third quarter’s top performers, and thesis stocks could add to gains into year end.
This price zone naturally divides inbetween two opposing market themes. Very first, it is overcharged with beaten-down stocks grinding through basing patterns after steep downtrends, hoping to regain favor with the investing public. Newer issues comprise a 2nd and smaller group that is listing for the very first time or advancing from the pink sheets due to growing revenues or bullish stories that attracts investor rente. (See also: Penny Stocks to Observe for October 2018.)
Traders should manage position size when trading low-priced equities because frequent secondary offerings can end nascent uptrends, stopping them dead te their tracks. Te addition, it is significant to witness out for sweetheart deals that suggest hedge funds preferred shares while diluting common stock value. Thesis common hazards also tell risk-conscious market players to maintain relatively taut stop-losses to limit their bearish impacts.
Adesto Technologies Corporation (IOTS) came public at $Five.60 ter October 2015 and klapper an all-time high at $8.50 te December. It then entered a persistent downtrend, losing ground ter a long series of lower highs and lower lows that found support te November 2018, posting an all-time low at $1.50. The stock ticked higher into January 2018 and took off te a strong uptrend that eased into a rising channel ter February.
The stock rallied into the IPO opening print ter May and dropped into a rounded consolidation pattern, ahead of an August breakout that has now reached the 2015 high (blue line). A breakout will open the onderbrak to the dual digits, while the red-hot semiconductor sector offers a stiff tailwind for outsized gains. The Oct. 26 earnings report could offerande a bullish catalyst for that rally wave. (For more, see: Adesto Technologies Shows Strength: Stock Gains 18%.)
Codexis, Inc. (CDXS) entered the national exchanges at $13 te April 2010 and fell into an instant downtrend that continued into December 2013’s all-time low at $1.24. The subsequent recovery wave stalled at $Five.65 ter April 2015, providing way to a rounded correction that found support near $Trio ter March 2018. The stock returned to the 2015 high te July 2018, broke out into August and is now trading at a five-year high.
The rally has reached resistance at $6.88 (blue line), generated by the very first sway low after the 2011 public suggesting. This level also marks the 50% retracement? of the three-year downtrend, raising the odds for a pullback that tests the August breakout. Spil a result, a decline into $Five.25 should suggest a low-risk buying chance for long-term positions for those willing to hold the shares into a breakout and test of the IPO opening print ter the dual digits. (See also: Biotech’s Breakout to Embark te the Fourth Quarter.)
Camtek Ltd. (CAMT) bounced to $7.87 ter 2004 after selling off from $11.50 to 24 cents when the dotcom bubble burst te 2000. It tested that resistance level ter 2006, 2011 and 2014, but it failed to pauze out while posting a higher low after each rally wave. The stock returned to resistance once again te June 2018 and sold off, finding support at the 200-day exponential moving average (EMA) te August. A bounce since that time has reached within three points of resistance.
The stock is building a short-term basing pattern with resistance near $6.00 and could still test the August low. A base breakout should favor a excursion back to the June high, eventually completing the multi-decade breakout pattern, ahead of an uptrend that reaches the 2000 high at $11.50. This setup may require patience, with a breakout delayed into the very first quarter of 2018 while supporting a low-risk trade entry closer to $Four.50. (For more, see: Strength Seen ter Camtek: Stock Adds 5% ter Session.)
The Bottom Line
Single-digit stocks are attracting aggressive capital thesis days, with many issues engaged te strong uptrends. Traders should look for this speculative fervor to proceed into 2018, likely lifting thesis stocks to multi-year highs. (For extra reading, check out: Cheap Stocks Can Be Deceiving.)
<,Disclosure: The author held no positions te the aforementioned securities at the time of publication.>,