Volatility rose sharply in the first half of February, driven by rising Treasury yields and growing odds that the Federal Reserve will raise interest rates. It's projected that the Fed will increase rates at least three times in 2018. Major stock indices plummeted in early Feb but eventually found their footing and have now recouped the majority of losses. Even so, it’s likely the broad market has entered a correction or rangebound phase that encourages profit-taking and rotation into new instruments.
The Russell-2000 small-cap index fell more than 11% during the selloff and has now settled in the upper half of a trading range in place since September. Selling pressure spared the majority of penny stocks and low-priced stocks, with profit-taking focused on high growth plays that rallied to unsustainable levels in the January uptrend. A healthy share of freed up capital could rotate into these issues in coming weeks, as speculative appetite returns to normal levels.
February’s watch list performed well given volatile cross-currents. In February, Viking Therapeutics, Inc. (VKTX) was a top penny stock pick and advanced by 30%. Digital Turbine, Inc. (APPS) added more than 16% during the month while Safe Bulkers, Inc. (SB) rose more than 10%. These issues have returned in the March list, along with two February plays that have drawn bullish consolidation patterns. Given the relatively strong performance of industrial plays, the new penny stocks to watch list also includes two stocks that should benefit from new infrastructure spending and the strengthening world economy.
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Penny Stocks to Keep Watching
1. Viking Therapeutics, Inc. (VKTX)
Viking Therapeutics, Inc. (VKTX) posted an all-time high at $10.23 just a few sessions after coming public at $8.50 in April 2015. The junior biotech stock then turned sharply lower, losing ground into the second half of 2017 when it posted an all-time low at 88-cents. The stock finally ended the multi-year downtrend when it broke out above a trendline of lower lows in September and has now entered a healthy uptrend that could eventually reach the IPO print above $8.00.
2. Westport Fuel Systems, Inc. (WPRT)
Westport Fuel Systems, Inc. (WPRT) topped out at an all-time high in the low-50s in 2012 and rolled over, entering a brutal decline that continued into March 2017’s all-time low at 82-cents. A bounce into October stalled at $4.09, giving way to a rectangular trading range that’s holding support at the 200-day EMA near $2.70. The next bounce could gain traction, lifting the stock back to range resistance, ahead of a breakout that targets the 2015 high at $6.74.
3. Tuesday Morning, Corp. (TUES)
Tuesday Morning, Corp. (TUES) ended a multi-year uptrend in the low-20s in the fourth quarter of 2014 and entered a decline that reached a 9-year low at $1.60 in June 2017. The stock built a basing pattern at that level and turned higher in August, stalling at the 200-day EMA near $3.00 in September. Two breakout attempts have failed while price action has carved a rectangle pattern with support at $2.40. It’s just rallied to a 4-week high and could break out in coming weeks, reaching broken 2015 support near $5.00.
4. Safe Bulkers, Inc. (SB)
Safe Bulkers, Inc. (SB) hit a 5-year high at $11.48 in March 2014 and carved a topping pattern, ahead of a breakdown that escalated in the fourth quarter of 2015, dropping the stock to an all-time low at 30-cents. The subsequent recovery wave eased into a rising channel in April 2016, with that pattern still in force nearly two years later. The uptick stalled at $3.50 in September 2017, generating two failed breakout attempts ahead of a successful February 2018 advance that could now reach channel resistance above $5.00.
5. Digital Turbine, Inc. (APPS)
Digital Turbine, Inc. (APPS) got crushed between 2008 and 2010, dropping from the low-30s to just 75-cents. A recovery rally into 2013 stalled at $6.00, generating a double top pattern and 2015 breakdown that undercut 2010 support, posting an all-time low at 56-cents in November 2016. Constructive price action since that time has reached double top resistance near $2.50 while impressive buying power predicts an eventual breakout. That trend advance has the potential to double the stock’s price in coming months.
New Penny Stock Picks for March
6. Gerdau SA ADS (GGB)
Gerdau SA ADS (GGB) posted an all-time high at $26.22 in 2008 and sold off into single digits during the economic collapse. A bounce into 2010 stalled at $17.99, yielding a downtrend that picked up steam between 2013 and 2016, dropping the stock to a 13-year low at 79-cents. The subsequent recovery stalled at $4.30 in December 2016, giving way to an inverse head and shoulders pattern that broke to the upside earlier this month. This breakout could gain traction in coming weeks, underpinned by the likelihood of U.S. steel tariffs and infrastructure legislation.
7. HTG Molecular Diagnostics, Inc. (HTGM)
HTG Molecular Diagnostics, Inc. (HTGM) came public at $14 in May 2015 and topped out quickly at $19.75. The subsequent decline generated a single bounce into February 2017, posting an all-time low at $1.20. A dramatic March buying surge reached $13.25 before rolling over in a long correction that found support near $1.60 in August. The stock turned higher once again in January 2018 and just reversed at the .382 Fibonacci selloff retracement level above $5.00. Look for buyers to return at or above $3.70, igniting a buying surge that could eventually reach the .618 retracement at $8.80.
8. PolyMet Mining, Corp. (PLM)
PolyMet Mining, Corp. (PLM) found support at 46-cents in 2009 following a steep decline from $4.50. The subsequent uptick ended at $3.79 in 2010, yielding 8-years of rangebound action between those price levels. The stock tested range support in 2015 and again in 2017, finally turning higher in December. The rally gained traction into February 2018 and stalled at $1.34, generating a narrow triangle pattern that could yield a rally into the 2011 high at $2.65. Buying power has escalated in recent months, offering the potential for even stronger gains.
9. Civeo, Corp. (CVEO)
Civeo, Corp. (CVEO) turned sharply lower just three months after coming public in the low-20s in June 2014, descending in a vertical decline that finally ended at an all-time low under a buck in January 2016. A bounce into 2017 stalled just above $3.50, giving way to a rounded correction that’s now completed an inverse head and shoulders pattern. A breakout will target the unfilled December 2014 gap between 5 and eight but is unlikely to fill the big hole on the first attempt. As a result, taking profits within that price zone makes perfect sense.
10. Telaria, Inc.(TLRA)
Telaria, Inc. (TLRA) gapped down between $9.25 and $5.10 in November 2013, establishing a resistance zone that remains in force more than four years later. The subsequent decline posted an all-time low at $1.29 in February 2015, ahead of a base-building period that yielded an August 2017 breakout. The stock reached gap resistance in October and eased into a rectangular pattern that’s still in play. This week’s failed breakout attempt will test bulls’ resolve, with support at $3.52 likely to hold and generate more bullish second-quarter price action.
The Bottom Line
March’s penny stock watch list features many industrial plays that could benefit from U.S. tax cuts, infrastructure spending and strong economic growth around the world.
<Disclosure: the author held no positions in the securities above at the time of publication.>