Market volumes contracted in May, with major outflows from U.S. equity funds signaling caution due to rising D.C. political drama that’s delayed implementation of the Trump administration’s proposed business-friendly agenda. Speculation in penny stocks fell while available capital focused on overextended uptrends in big tech and other blue-chip venues. This rotational behavior may continue until low-risk intermediate correction forces profit taking and the execution of more speculative profit strategies.

May's penny stocks to watch pick Sequans Communications SA (SQNS) rallied more than 30% during the month, lifting to a 5-year high while Castle Brands, Inc. (ROX) added to its strong uptrend, gaining nearly 18%. Junior biotech picks languished in reaction to battle lines drawn across health care reform and its impact on the pharmaceutical industry while small tech plays emerged as low-priced sweet spots, powered by sector rallies to multi-decade and all-time highs.

Utilize aggressive risk management techniques including tight stop losses when trading penny stocks because beaten-down companies on the rebound trail comprise the vast majority, often relying on secondary offerings and sweetheart deals with big investors to pay employees and keep the lights on. These financial dealings can generate dilution that triggers sudden high percentage declines, wiping out weeks of speculative profits. Below are the top penny stocks to watch for June 2017.

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Penny Stocks To Keep Watching

1. Sequans Communications SA (SQNS)

SQNS

Sequans Communications SA (SQNS) sold off between $19.50 and 66-cents between 2011 and 2015, finally bottoming out in August and bouncing into a well-organized basing pattern that continued into an April breakout to a multiyear high. The opening print of the April 2011 IPO at $9.00 could generate a magnetic target in this emerging uptrend, which has attracted sizable buying interest in the last two months. Price action has now eased into a rising channel pattern, with support at $4.00 set to offer a low-risk trade entry during the next pullback.

2. Southcross Energy Partners L.P. (SXE)

SXE

Southcross Energy Partners L.P. (SXE) came public in November 2012 and posted an all-time high at $26.49 in March 2013. The subsequent decline picked up steam into the first quarter of 2016, dropping the stock to an all-time low at 38-cents. A two-legged recovery wave reached a 17-month high in April 2017, giving way to a symmetrical triangle pattern that’s still under construction. A breakout above $4.74 should ignite a fresh rally leg that might reach $6.50 while a decline through $3.33 will break the bull pattern, exposing the stock to a new downtrend.

3. Castle Brands Inc (ROX)

ROX

Castle Brands, Inc. (ROX) plunged in the 2000s bear market, dropping from its IPO of $9.60 in April 2006 to an all-time low at 1-cent. A slow-motion recovery reached $2.03 in November 2014 and gave way to a steep decline that posted a higher low at 65-cents in December 2016. It’s been all upside since that time, with a February breakaway gap generating a momentum rally that’s now entered a critical test at the 2014 high. A breakout will open the door to a more vigorous uptrend that could reach high single digits while a selloff through $1.70 will signal a bearish reversal.

New Penny Stock To Watch For June

4. ImmunoGen, Inc. (IMGN)

IMGN

ImmunoGen, Inc. (IMGN) posted a 12-year high at $20.25 in 2013 and sold off to $5.34 in December 2014. A 2015 recovery wave stalled less than one point below the prior peak, generating a steep decline that continued into an 18-year low at $1.51 in November 2016. Buyers finally took control in 2017, generating a channeled uptick that reversed at 2014 resistance about two weeks ago. This pullback could signal a buying opportunity, with a bounce at or above the unfilled April gap at $3.25 setting the stage for a breakout toward long-term resistance near $8.00.

5. China Commercial Credit, Inc. (CCCR)

CCCR

China Commercial Credit, Inc. (CCCR) came public on the U.S. exchanges at $6.50 in August 2013 and went through a series of growing pains that contributed to a steep downtrend. It finally bottomed out at 25-cents in February 2016 and entered an uptrend that stalled at $3.20 in September. A lazy decline off that level posted a higher low in March 2017, ahead of a momentum-fueled advance that’s now testing the 2016 high. A breakout should attract broad buying interest that may support continued upside into a critical test at the IPO opening print.

6. Hovnanian Enterprises, Inc. (HOV)

HOV

Homebuilder Hovnanian Enterprises, Inc. (HOV) topped out in the mid-70s in 2005 and got crushed when the real estate bubble burst, dropping to an all-time low at 52-cents. It bounced to $8.05 in 2010 and tested that resistance level in 2013, generating a reversal and downtrend that posted the second higher low of the decade in January 2016. The subsequent uptick peaked in December, ahead of a rounded correction that’s just yielded a base breakout above $2.50. This bullish price action sets the stage for a breakout attempt at 2-year resistance just above $3.00.

7. Pieris Pharmaceuticals, Inc. (PIRS)

PIRS

Pieris Pharmaceuticals, Inc. (PIRS) began life on the OTC market in 2014, stuck in a trading range between $2.00 and $4.25 into a 2015 breakdown that dropped the stock to $1.26 in January 2016. It ground sideways into November, finally testing the first-quarter low, ahead of a January 2017 breakaway gap that’s attracted steady buying interest. The rally gathered additional momentum in early May after the company announced a key partnership with AstraZeneca PLC (AZN) and is now testing the 2015 high, which also marks the all-time high.

8. Radiant Logistics, Inc. (RLGT)

RLGT

Radiant Logistics, Inc. (RLGT) rallied above its 2006 high at $1.05 in 2010, entering a strong uptrend that posted a series of highs into the June 2015 all-time high print at $8.00. It sold off to $2.94 in the first quarter of 2016 and bounced to $3.80, where aggressive sellers triggered a decline to a 2-year low at $2.45. Committed buyers then emerged, lifting the stock in a series of rally waves that have now reached within $1.50 points of the prior peak. It’s been basing on the 50-day EMA for the last three weeks and could lift into a test of resistance during the summer months.

9. CymaBay Therapeutics, Inc. (CBAY)

CBAY

CymaBay Therapeutics, Inc. (CBAY) rallied into a test of the all-time high at $13.78 in February 2015 and entered a steep downtrend that continued into the first quarter of 2016, dropping the junior biotech to an all-time low at 82-cents. It bounced to $3.04 in April, posting a yearly high, ahead of a pullback that continued into November low at $1.15. The stock broke out above the 2016 high in February 2017, entering an uptrend that’s just posted a 2-year high at $4.81. Look for strong buying interest to continue in coming months, lifting price closer to double digits.

10. Zynga, Inc. (ZNGA)

ZNGA

Video game developer Zynga, Inc. (ZNGA) came public at $11 in December 2011 and entered a strong uptrend that posted an all-time high at $15.91 in March 2012. The subsequent downtrend continued into October 2014 low at $2.20 and eased into a narrow basing pattern that washed out the last supply of sellers when it fell to an all-time low at $1.78 in February 2016. The stock finally completed a base breakout about three weeks ago, entering a healthy uptrend that could reach the 2014 high at $5.89 in coming months while a pullback to $3.00 might offer a low-risk buying opportunity.

The Bottom Line

Low May liquidity had a dampening effect on penny stock speculation, but a handful of low-priced winners have emerged, carving bullish recovery patterns that predict higher prices into the second half of 2017.

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

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