The Russell-2000 small-cap index broke out to a bull market and all-time high in September, signaling an increase in risk-taking and speculative fervor that’s underpinned strong uptrends throughout the penny stock universe. These supportive technical conditions should persist through the fourth quarter and into 2018, allowing a wide assortment of these issues to reach multi-year highs.

September picks did exceptionally well with these strong tailwinds in place, led by Intrepid Potash, Inc. (IPI), which rallied 24% to a 23-month high. RADA Electronic Industries, Ltd. (RADA) broke out to a 2-year high during the period while 22nd Century Group, Inc. (XXII) posted the highest high since July 2014. Those penny stocks are on the October list, with recent pullbacks working off overbought technicals while setting the stage for lower-risk entries.

The 50-day EMA does a great job visualizing buy-the-dip zones on penny stocks. Pullbacks during active uptrends often find support at this moving average, triggering reversals that can generate substantial rally momentum. Buying or adding to positions close to these price levels often produces relatively quick profits, turning the position into a potential free trade when a stop is placed above the breakeven price. This entry strategy works most reliably when the moving average narrowly aligns with a prior high or another breakout level.

Penny Stocks to Keep Watching

Here are the penny stocks to watch as of October 2017. For more investing insights, take a look at Investopedia's broker reviews.

1. RADA Electronic Industries, Ltd. (RADA)

RADA Electronic Industries, Ltd. (RADA) struggled to gain ground for more than two decades, stuck in a persistent decline that dropped the stock from the low-60s in 1994 to an all-time low at 54-cents in March 2016. The technical tone improved three months later when a bounce lifted above the 2008 low at $1.00, signaling the failure of bears to defend a major resistance level. The subsequent uptrend has accelerated into the second half of 2017 and is now poised to challenge resistance generated by a 2015 descending triangle breakdown at $3.50.

2. 22nd Century Group, Inc. (XXII)

22nd Century Group, Inc. (XXII) sold off from $6.36 to 56-cents and turned higher in August 2015, carving a broad basing pattern with resistance near $1.50. The stock broke out on heavy volume in August 2017, entering a strong uptrend that posted a 3-year high at $3.34 in early September. It’s been pulling back for the last 3-weeks and has now reached the prior high and 50-day EMA near $2.50, raising odds for a strong bounce that tests the summer high, ahead of continued upside that could eventually triple the current price.

3. Intrepid Potash, Inc. (IPI)

Intrepid Potash, Inc (IPI) entered a steep downtrend during the 2008 economic collapse, dropping from the 60s to low teens, ahead of a persistent recovery effort that stalled at $40 in 2011. A 2013 selloff found willing buyers at the bear market low while a 2015 test triggered a breakdown that ended at 65-cents in the first quarter of 2016. The stock has stair-stepped higher in the last 18-months, reaching a 2-year high at $4.40 on September 26. Continued upside looks likely, with the next substantial barrier located at the October 2015 swing high above $7.00.

4. Moleculin Biotech, Inc. (MBRX)

Moleculin Biotech, Inc. (MBRX) had few buyers after coming public at $8.99 in June 2016 and entered a downtrend that picked up steam into May 2017, dropping the stock to an all-time low at 71-cents. It rocketed higher in late June, peaking at $3.75 and dropping into an ascending triangle pattern. Two breakout attempts have failed so far, but the stock is holding like glue to 50- and 200-day EMA support, raising odds it will break out soon and head toward strong resistance between $5.50 and $6.00.

5. Zynga, Inc. (ZNGA)

Zynga, Inc. (ZNGA) posted an all-time high at $15.91 in March 2012 and entered a steep decline, losing nearly 14-points in just eight months. A weak recovery wave into 2014 got sold aggressively, giving way to a slow-motion pullback that tested the 2013 low in 2016. Willing buyers emerged at that level, lifting the stock in a two-legged advance that eased into a symmetrical triangle pattern in June 2017. A September breakout attempt failed, dropping the stock back to the 50-day EMA, where it may initiate a second breakout attempt in coming days.

New Penny Stocks to Watch for October 2017

6. Xplore Technologies, Corp. (XPLR)

Xplore Technologies, Corp. (XPLR) declined from a high at $100 in 2010 to $3.05 in 2013. It then entered a recovery wave that stalled near $7.50 in 2014, ahead of a failed test at that level in 2015. It rolled over and broke down in June 2016, finding support at an all-time low at $1.54 in June 2017. The subsequent bounce lifted above the 2013 low in August and dropped into a symmetrical triangle that could yield a vigorous rally up to 2015 resistance at $6.15 in coming months. A buying spike above $3.70 could set that uptrend into motion.

7. Plug Power, Inc. (PLUG)

Plug Power, Inc. (PLUG) sold off from a split-adjusted $1565 in 2000 to a 2013 all-time low at 12-cents. It turned higher into March 2014, stalling at $11.72 and rolling over in a channeled decline that ended at 83-cents in March 2017. Price action in the last six months has carved a vertical buying spike into $2.70, followed by a rounded correction that’s nearly completed a small-scale cup and handle pattern. A breakout should target the May 2014 swing low at $3.65, marking a high percentage rally from the currently traded level.

8. Durect, Corp.(DRRX)

Durect Corp. (DRRX) posted an all-time low at 61-cents in November 2012 and entered a choppy uptrend that topped out at $3.42 in June 2015. The subsequent decline unfolded in multiple waves, ending at a 2-year low in April 2017 and giving way to a strong bounce that stalled at resistance near $2.00 in July. The stock has carved a rounded correction since that time, finding support at the 50-day EMA and is now challenging the second quarter high, with a breakout raising odds for continued upside into the 2015 high.

9. Microvision, Inc. (MVIS)

Microvision, Inc. (MVIS) topped out at a split-adjusted $548 in 2000 and entered a brutal downtrend that continued into the 2012 low at $1.11. A 2013 bounce to $3.49 carved posted resistance, ahead of multiple reversals that have outlined a broad rectangular basing pattern. The stock turned higher in October 2016, entering an uptrend that’s now reached the upper half of this persistent trading range. It broke out to a 22-month high in September and has now settled near $2.75 while signaling additional upside that could reach the 2015 high at $4.23.

10. BioDelivery Sciences International, Inc (BDSI)

BioDelivery Sciences International, Inc. (BDSI) broke out above 7-year resistance at $8.26 in 2014 and rallied to an all-time high at $18.48 a few months later. A pullback into 2015 triggered a failed breakout, generating a steady decline that continued into November 2016’s 4-year low at $1.50. It tested that level in April 2017 and turned higher, completing a double bottom that supported an uptrend to a 52-week high at $3.60 in July. The stock pulled back into September, finding support at the 200-day EMA, and could now bounce back to the third quarter high.

The Bottom Line

Technology and biotechnology plays highlight October’s penny stock list while the recent Russell-2000 breakout should benefit a wide assortment of low-priced stocks in the fourth quarter. Even so, this group remains highly speculative, requiring aggressive risk management to book steady gains.

<Disclosure: the author held no positions in aforementioned securities at the time of publication.>

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