Higher than average market volatility continued in April, generating choppy bilateral price action in broad-based indices. The Russell-2000 small-cap index held up better than the S&P 500 or Nasdaq-100, with trade tensions favoring small domestic issues over multinational giants. Positive small-cap seasonality generated an additional tailwind, with these stocks expected to outperform through the middle of May.
The WTI crude oil futures contract has rallied to a 2-year high in reaction to strong U.S. output and exports, triggering a broad-based advance in gas and oil exploration and production stocks. Low-priced sector plays have gained ground as well, with a broad basket of penny stocks posting 52-week highs. Look for this emerging uptrend to continue through the summer months, offering numerous buying opportunities.
Legacy Reserves LP (LGCY) posted the most substantial returns on April’s penny stocks watch list, gaining nearly 18% in sympathy with energy sector buying interest. The Texas explorer has returned on May’s list, along with four penny stock picks that spent the month running in place, filling out consolidation patterns. These penny plays could break out if trade tensions ease in coming weeks, allowing bond yields to reverse off multi-year highs that could trigger several Federal Reserve rate hikes between now and the end of 2018.
Penny Stocks to Keep Watching
1. Gerdau SA ADS (GGB)
Gerdau SA ADS (GGB) topped out near $18 in 2010 and entered a long-term downtrend that ended at 79-cents in January 2016. The subsequent uptrend unfolded in three rally waves, stalling and reversing at $4.30 in November. The stock ground sideways in a trading range throughout 2017, finally breaking out in January 2018 and hitting a 3-year high at $5.32 in early March. Two tests at new support have found willing buyers, raising odds for continued upside that could reach $7.50.
2. HTG Molecular Diagnostics, Inc. (HTGM)
HTG Molecular Diagnostics, Inc. (HTGM) posted an all-time high at $19.75 in June 2015 and rolled into a downtrend that hit an all-time low at $1.20 in February 2017. The stock then caught a momentum wave, gaining more than 13-points in one month before reversing into a decline that lasted for the rest of the year. It turned higher once again in January 2018 and reached an 11-month high in March while the pullback into April has found support at the 200-day EMA. This price level could offer a low-risk entry, ahead of an uptick that reaches $7.50.
3. Legacy Reserves LP (LGCY)
Legacy Reserves LP (LGCY) broke down from a 3-year topping pattern in 2014 and fell to an all-time low at 61-cents in March 2016. A vertical recovery wave stalled at $3.89 one month later, yielding a persistent decline that posted a higher low in December 2017. The stock took off in a new uptrend in January 2018 and broke out above the 2016 high in March, hitting a 2-year high. The rally continues to gain traction, underpinned by higher crude oil prices, and could eventually reach 2015 resistance near $8.50.
4. Luna Innovations, Inc. (LUNA)
Luna Innovations, Inc. (LUNA) sold off from $8.68 to 26-cents during last decade’s economic collapse and bounced to $5.00 in January 2010. Rally attempts since that time have failed to approach that barrier, stalling between $3.00 and $4.00. The stock turned higher in August 2017, more than tripling in price into a reversal on April 5, 2018, and has been consolidating in a symmetrical triangle for the last three weeks. This bullish action could trigger a fresh rally leg that finally brings 2010 resistance into play.
5. Tuesday Morning, Corp. (TUES)
Tuesday Morning, Corp. (TUES) hit a 9-year high in the low-20s in January 2015 and entered a steep decline that posted an 8-year low at $1.60 in June 2017. The stock turned higher in August and stalled at the 200-day EMA in October, finally clearing that barrier in March 2018. The uptick ended above $4.00 a few days later, generating a rectangle pattern with support at $3.50. It’s now testing that level, with a breakdown bringing the 200-day EMA back into play, offering a possible low-risk entry that could profit with a bounce that reaches $5.50 to $6.00.
New Penny Stock Picks for May
6. Enphase Energy, Inc. (ENPH)
Enphase Energy, Inc. (ENPH) topped out at $17.97 in 2014 and broke down eight months later, entering a downtrend that hit an all-time low at 65-cents in May 2017. The subsequent uptick stalled in November after mounting resistance at the 200-day EMA and tested that level successfully in January 2018. The stock posted a 52-week high at $5.58 in March and has been pulling back since that time, consolidating on top of the 50-day EMA near $3.90. This price action could offer a dip buying opportunity, ahead of continued upside that eventually reaches double digits.
7. Stein Mart, Inc. (SMRT)
Stein Mart, Inc. (SMRT) topped out at 2007 resistance in the upper teens in 2013 and broke down in 2015, entering a decline that hit an all-time low at 48-cents in February 2018. The stock drifted higher into March and took off in a one-day momentum spike that reversed at $2.45. Price action has held within the boundaries of that breakout bar for the last 6-weeks, with a consolidation pattern at $2.00 setting the stage for a test at the rally high. A breakout could generate significant upside, lifting the beaten-down retailer into 2016 resistance above $5.50.
8. Neptune Technologies and Bioressources, Inc. (NEPT)
Neptune Technologies and Bioressources, Inc. (NEPT) ended a multi-year uptrend within 26-cents of 2008 high at $5.40 in 2012 and broke down in 2014, carving a decline that bottomed out at 70-cents in August 2017. It took off in a powerful uptrend just three months later, lifting to a 4-year high at $3.59 in January 2018 and settling into a narrow range pattern that’s carved a trendline across the swing highs. A breakout above $3.10 should attract strong buying interest that favors a key test near 10-year resistance above $5.00
9. Mid-Con Energy Partners, LP (MCEP)
Mid-Con Energy Partners, LP (MCEP) hit an all-time high at $27.05 in 2013 and entered a severe decline one year later, tumbling into January 2016’s all-time low at 72-cents. The subsequent bounce topped out at $4.05 in May, marking the top of a trading range that remains in force nearly 2-years later. A January 2018 uptick stalled at $2.04, grinding out a rectangle pattern that’s crisscrossing the 50-day EMA at $1.60. The stock just lifted into the top of this pattern and could break out in a rally that reaches range resistance above $4.00.
10. Bellerophon Therapeutics, Inc. (BLPH)
Bellerophon Therapeutics, Inc. (BLPH) came public at $9.25 in February 2015 and posted an all-time high at $12.92 in the next session. It then reversed into a downtrend that picked up steam in the fourth quarter of 2016, dropping the stock to an all-time low at 43-cents. The subsequent bounce stalled at $1.98 in March 2017 while a December rally cleared that level, reaching $2.74. The stock spent the first quarter of 2018 testing new support and has now turned higher, possibly signaling a breakout that could reach 2016 resistance at $4.58.
The Bottom Line
Stocks that hit all-time lows in the last two years dominate May’s penny watch list, with emerging uptrends showing significant upside potential.
<Disclosure: the author held no positions in the securities mentioned above at the time of publication.>