This summer presents several opportunities to trade penny stocks if the right risk management techniques are applied. Certain sectors such as biotechnology (also known as biotech) are now poised for a breakout. Biotech funds broke out of long-term basing patterns in June, triggering intense rotational buying pressure that’s underpinned components at all capitalization levels. This price action bodes well for the low-priced sub-sector, with many penny stocks set to hit multi-year highs.

Conversely, the tech sector is getting sold with equal force in a profit-taking exercise that could trigger a long period of under-performance for that group’s lowest-priced issues.

Not surprisingly, June’s biotech picks attracted strong buying interest, led by ImmunoGen, Inc.'s (IMGN) 48% momentum-fueled advance to a 52-week high. Small China stocks also posted strong upside, with China Commercial Credit, Inc. (CCCR) gaining almost 35%. That stock and June’s three biotech picks have returned in July’s list, which also features six new penny stocks that could generate strong upside. (Want to get better at trading penny stocks? Take our day trading course).

Manage position sizing when trading penny stocks to avoid steep losses caused by unforeseen events or developments. This risk management process requires three steps. First, calculate the largest loss you’re willing to incur if your position sells off. Second, look for strong support on the price chart where a decline is likely to find buying interest. Third, measure the distance between your intended entry price and that level. Fourth, divide the result by the current price and buy no more shares than that calculation. (For more on the risks of penny stocks, see: Understanding Penny Stocks' Risks and Rewards).

Penny Stocks To Keep Watching

1.ImmunoGen, Inc. (IMGN)

ImmunoGen, Inc. (IMGN) struggled to break out above resistance in the low-20s at the start of this decade, topping out at a 12-year high at $20.25 in 2013 and selling off to $5.34 in December 2014. A V-shaped 2015 recovery wave ended just below the prior high, giving way to a major decline that reached a multi-decade low near $1.50 in November 2016. Buyers returned in January 2017, powering a channeled uptick that stalled at 2014 resistance in May. The stock broke out in June and could now head for the $8.00 to $10.00 price zone.

2. China Commercial Credit, Inc. (CCCR)

China Commercial Credit, Inc. (CCCR) first listed on the Nasdaq exchange in 2013. It then subsequently entered a severe decline that intensified during a multi-month trading halt. It returned to the public market in April 2015 and continued to lose ground into the first quarter of 2016 when it bottomed out at 25-cents. The subsequent recovery wave stalled at $3.20 in September, ahead of a rounded correction and bounce that’s now completed a small-scale cup and handle pattern. Given this bullish structure, a breakout above $3.50 could double the stock price into year’s end.

3.CymaBay Therapeutics, Inc. (CBAY)

CymaBay Therapeutics, Inc. (CBAY) topped out at $13.78 in the second half of 2014 and turned sharply lower, descending in multiple waves into an all-time low at 82-cents in February 2016. A quick buying spike to $3.04 in the second quarter got sold aggressively, ahead of a narrow trading range that finally broke to the upside in February 2017. The rally has now reached a 2-year high while attracting steady buying interest that could support an eventual trip into double digits.

4. Pieris Pharmaceuticals, Inc. (PIRS)

Pieris Pharmaceuticals, Inc. (PIRS) topped out at $4.39 in June 2015 and entered a steep downtrend that posted a January 2016 low at $1.26, ahead of heavy but illiquid price action that tested the low repeatedly into December. Sentiment improved substantially in January 2017, lifting the stock off the horizontal basing pattern into a new uptrend that’s now posting a series of all-time highs. The company’s profitable partnership with blue-chip drug manufacturer AstraZeneca PLC (AZN) should continue to pay dividends in coming months.

New Penny Stocks To Watch For July

5. 22nd Century Group, Inc. (XXII)

22nd Century Group, Inc. (XXII) broke out above multi-year resistance near $1.50 in 2013 and rallied to an all-time high at $6.36 a few months later. It then entered a persistent decline that continued into August 2015 when it found support at 56-cents, ahead of a quick bounce to $1.75. The stock has traded within those boundaries for the last 22-months, bouncing at support three times while reversing at resistance three times. It just returned to that level for the fourth time, raising odds for a breakout that could double the stock’s price in the second half of the year.

6. Corindus Vascular Robotics, Inc. (CVRS)

Corindus Vascular Robotics, Inc. (CVRS) returned to the national market in 2015 after a trading halt, topping out near $4.50 and entering a decline that continued to post new lows into January 2017 when it may have bottomed at 40-cents. Price action since that time has been constructive, with a series of high volume rally bursts lifting the stock into 2016 resistance at $1.75. In turn, this bullish behavior has completed a cup and handle basing pattern that predicts an uptrend into the 2015 high following a breakout.

7. RADA Electronic Industries, Ltd. (RADA)

RADA Electronic Industries, Ltd. (RADA) fell into a multi-decade decline after joining the Nasdaq Stock Market the 1990s, grinding out a long series of lower highs and lower lows into January 2016’s all-time low at 54-cents. It spent 16-months grinding sideways in a narrow basing pattern and turned sharply higher in May 2017, rallying back to 2016 resistance at $1.78. This bullish price action has completed a cup and handle breakout pattern that could yield a fast rally into the August 2015 gap between $3.70 and $2.50.

8. ChromaDex, Corp. (CDXC)

ChromaDex, Corp. (CDXC) came public at $4.70 in April 2016 and rallied to an all-time high at $6.18 in May. The stock plunged one month later, dropping to $2.46 in a single session, ahead of bearish price action that posted a lower December low. It tested that support level in April 2017 and turned sharply higher, completing a bottoming pattern, ahead of strong upside that’s now testing 2017 resistance at $3.80. A breakout could generate significant upside, lifting the stock back into last year’s high.

9. Safe Bulkers, Inc. (SB)

Safe Bulkers, Inc. (SB), a major player in the hot and cold dry bulk shipping sector, topped out at $11.48 in March 2014 and entered a steep downtrend that reached an all-time low at 30-cents in January 2016. A recovery wave into November stalled at $2.38, ahead of sideways action that’s now completed a small-scale cup and handle breakout pattern. A buying spike above $2.60 should set the upside into action, supporting a rally that could exceed $5.00.

10. Ballard Power Systems, Inc. (BLDP)

Ballard Power Systems, Inc. (BLDP) hit an all-time high at $144.95 in 2000 and rolled into a brutal downtrend that lasted for more than 12-years while dropping the stock to an all-time low at 56-cents. A 2013 uptrend continued into 2014, reaching an 8-year high at $8.38, ahead of a rounded correction that’s now returned to 2015 resistance at $3.10. A breakout could catch fire with this bullish configuration, lifting the stock into a test of the steep 2014 high.

The Bottom Line

Low-priced biotech stocks have awoken after a long slumber, with steady buying interest likely to continue into the fourth quarter. As a result, this group should offer a variety of profitable penny stock plays during the quiet summer trading season, while low-priced stocks in other sectors ease into narrow trading ranges.

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

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