The majority of small-cap stocks have taken a beating in recent weeks, dropping the Russell 2000 small-cap index nearly 9% to a four-month low. A handful of components have carved bullish patterns despite these headwinds, exhibiting resilience that predicts higher prices once the broad market stabilizes and finds a trading floor. Not surprisingly, many cannabis stocks populate this leadership board, but other groups are generating winners as well.
Market players can find these top performers by sorting a small-cap or low-priced stock list by relative positioning above the 200-day exponential moving average (EMA). The strongest stocks will float to the top of the pack using this time-tested method, allowing a secondary review of technicals and fundamentals, looking for excellent reward potential in sectors that are working in 2019's challenging market environment.
OrganiGram Holdings Inc. (OGI) produces and ships cannabidiol (CBDs) to markets all across Canada. The stock first traded on the U.S. exchanges in August 2014, opening near $2.00 and dropping quickly into a brutal downtrend that hit an all-time low at 16 cents in September 2015. It turned higher into 2016, entering an uptrend that has continued to post new highs into the second quarter of 2019.
The stock turned sharply higher after selling off to a nine-month low in December 2018 and has nearly tripled in price so far in 2019. It reversed a few weeks ago at a rising trendline going back to January 2018 and is now wedged between resistance at $8.50 and breakout support at $6.60. Price action has held the 50-day EMA so far in 2019, predicting that a pullback to $7.00 or so will offer a low-risk buying opportunity.
Dallas-based Zix Corporation (ZIXI) licenses and distributes security software applications. A steep decline hit an all-time low at 51 cents in 2006, while a bounce into 2008 stalled at $6.24, marking the highest high for the next nine years. Uptrends in 2011, 2013, and 2015 ended less than two points under resistance, while a 2017 rally finally completed the 100% retracement. The stock sold off into 2018 and bounced once again, completing a multi-year cup and handle breakout in January 2019.
The stock traded above $10.00 earlier this month for the first time since 2004 and reversed, partially filling the large May gap between $8.40 and $9.70. It has been stuck in neutral for the past two weeks, hovering just above $9.00, and might take a leg down to the 50-day EMA at $8.55 before finding substantial buying interest. That price action should fill the last part of the gap and set off a buy signal that favors continued upside into the summer months.
Canadian cannabis producer Hexo Corp. (HEXO) opened for trading on U.S. exchanges at $1.49 in March 2017 and sold off, hitting an all-time low at 89 cents in July. The subsequent uptick stalled above $4.00 in January 2018, giving way to a broad trading range with support near $2.50. The stock broke out in August, reversed at $7.17 in October, and failed the breakout in a December slide that posted a nine-month low near $3.00.
A January 2019 buying wave reinstated the breakout, while continued upside reached resistance at the 2018 high in March. The stock broke out in April, hit an all-time high at $8.40 a few days later, and pulled back to the 50-day EMA in mid-May. It has been consolidating at that support level for the past 12 sessions and could turn higher soon, resuming a strong uptrend that could easily reach the double digits.
The Bottom Line
A basket of resilient small-cap stocks is trading near new highs, despite broad market headwinds.
Disclosure: The author held no positions in aforementioned securities at the time of publication.