A broad-based uptrend lifted stocks at all capitalization levels in January, generating a healthy tailwind for penny stock plays. Big tech and blue chips posted the strongest monthly results, with recent tax cut legislation creating additional rocket fuel. Even so, the Russell-2000 small-cap index zoomed to an all-time high and continues to build strength as the month draws to a close, raising odds for higher prices through the first quarter.
Positive small cap seasonality will continue into March, with components likely to post their best 2018 returns. Penny stocks should benefit in this highly supportive environment, breaking out of multimonth basing patterns that have characterized this group’s price action since the middle of 2017. Careful stock-picking will be required despite these favorable conditions, with powerful uptrends at other capitalization levels competing for speculative attention.
Equity blockchain plays took a breather in January, consolidating after impressive fourth-quarter upside. Many of these issues are nearing significant support levels that should increase buying power, generating strong bounces that may test 2017 highs. Price action near 50- and 200-day EMAs should offer the most advantageous reward: risk when playing these highly volatile issues, which require aggressive risk management.
Penny Stocks To Keep Watching
1. Viking Therapeutics, Inc. (VKTX)
Viking Therapeutics, Inc. (VKTX) came public on the national exchanges in April 2015, opening at $8.50 and posting an all-time high at $10.23 a few sessions later. The subsequent downtrend continued into the second half of 2017, dumping the stock to an all-time low at 88-cents. It broke a trendline of lower lows in September, entering an uptrend that reached the December 2015 swing high at $5.19 on January 9, 2017. A breakout above this level could attract broad buying interest, lifting the stock above $8.00.
2. Nova Lifestyle, Inc. (NVFY)
Nova Lifestyle, Inc. (NVFY) rallied from an all-time low at 38-cents to a 2-year high at $5.15 in 2016 and pulled back in a rounded correction that found support near $1.10. It turned higher in the fourth quarter of 2017 and gapped up in November, after shifting its business model to blockchain technology. That buying impulse stalled at $3.10 while a December breakout attempt attracted aggressive selling pressure. The stock has held close to that resistance level in the last month, raising odds for a breakout that could reach the 2016 high.
3. Nxt-ID, Inc. (NXTD)
Nxt-ID, Inc. (NXTD) broke 2015 support at $1.60 in June 2017 and fell to an all-time low at $1.01 in November 2017. It jumped on the blockchain bandwagon in December, generating a momentum-fueled advance that topped out at $8.59 a week later. The subsequent pullback has settled at the 50- and 200-day EMAs, just below the .786 Fibonacci rally retracement level, with a bounce above $3.00 triggering a preliminary buying signal. It will take a buying spike above stronger resistance between $3.70 and $4.10 to generate more powerful upside.
New Penny Stock Picks For February
4. Westport Fuel Systems, Inc. (WPRT)
Westport Fuel Systems, Inc. (WPRT) posted an all-time high at $50.19 in 2012 and entered a severe decline that continued into the March 2017 all-time low at 82 cents. It rallied to a 2-year high at $4.09 in October and pulled back, carving a trading range with support at $2.53. An early January breakout attempt failed, generating a bull flag pullback that’s now sitting on the 50-day EMA. An upturn here could gain traction, triggering a breakout and trend advance that reaches 2015 resistance $6.74.
5. QuickLogic, Corp. (QUIK)
QuickLogic, Corp. (QUIK) tested the 2009 low at 51-cents in the fourth quarter of 2016 and turned higher, rallying to a 2-year high at $2.48 in March 2017. The subsequent decline found support at $1.15 in June while an August test generated a double bottom reversal that’s yielded modest upside in the last 5-months. The stock is now trading just 50-cents under the 2017 peak and could test that level in coming weeks. Look for a breakout to attract momentum buying interest, lifting the stock into major resistance between $4.50 and $5.00
6. Tuesday Morning, Corp. (TUES)
Tuesday Morning, Corp. (TUES) topped out at an 8-year high in the low-20s in 2014 and entered a severe decline, driven by consumers' shift to e-commerce. The downtrend settled at an 8-year low just above $1.50 in June 2017 while the subsequent bounce filled the May 2017 exhaustion gap in October. Price action since that time has hugged the gap fill level, indicating that buying signals will go off when the stock trades above $3.30 to $3.50. That impulse could yield additional upside above $5.00.
7. Noble, Corp. PLC (NE)
Noble, Corp. PLC (NE) topped out at $40.83 in 2011 and entered a downtrend that reached a 21-year low at $3.14 in August 2017. It turned higher into the fourth quarter, stalling at $4.75 and mounting that barrier in early January, lifting to a 9-month high at $5.80. The stock has been pulling back since that time and is now approaching major support at the breakout level, which has aligned with the 50- and 200-day EMAs. A bounce could attract strong buying interest, lifting the stock toward early 2017 resistance between $7.50 and $8.00.
8. AVEO Pharmaceuticals, Inc. (AVEO)
AVEO Pharmaceuticals, Inc. (AVEO) hit an all-time high at $21.55 and entered a downtrend that accelerated in 2013, gapping down between $5.07 and $3.01, The stock tested this resistance zone unsuccessfully in May 2015 and rolled over, falling to an all-time low at 50-cents in March 2017. The subsequent bounce stalled at resistance in August while a reversal into the fourth quarter has held firm at the 50-day EMA. In turn, this price action has built a sturdy basing pattern that could now support a breakout and healthy uptrend above $8.00.
9. Safe Bulkers, Inc. (SB)
Safe Bulkers, Inc. (SB) ended an uptrend at $11.48 in 2014 and rolled over in a steep downtrend that posted an all-time low at 30-cents in January 2016. It then eased into a channeled uptrend, gaining points at a modest pace into September 2017 when the rally stalled at $3.65. Constructive action into January has carved an ascending triangle pattern that’s now testing range resistance. A breakout will face a secondary barrier between $4.25 and $4.50, with stronger upside possible once that price zone is mounted.
10. Digital Turbine, Inc. (APPS)
Digital Turbine, Inc. (APPS) topped out just above $5.00 in 2012 and broke down from a triple top pattern in 2015, entering a downtrend that posted an all-time low at 56-cents in November 2016. It then entered a persistent uptrend, adding points into January 2018. The stock is now trading at a 2-year high while On Balance Volume (OBV) has risen to an all-time high. These tailwinds should support additional upside in coming months, lifting the stock toward triple top resistance between $2.75 and $3.25.
The Bottom Line
February’s penny stock watch list is split evenly between emerging blockchain plays, junior biotechs and beaten down issues that are attracting healthy buying pressure.
<Disclosure: the author held no positions in aforementioned securities at the time of publication.>