The beauty of technical analysis (TA) is that the opportunities are there whether the markets are climbing or falling. Thanks to a massive psychological shift among investors (which started in October and now has spread right until today), overall volatility has been increasing, and that volatility is like life blood for traders.
Of course, the current market scenario can be a double-edged sword. Sure, gains may be more significant and profitable opportunities more common in erratic markets, but when you make a bad call, the fallout can be swift and ugly. That is why, especially right now, but always always always, you should consider stop-loss orders to limit your downside.
In a theoretical example, if I personally buy a stock at $4.75, I may sell the entire position if it drops to $4.59 or less, for any reason. That is not foolproof, but it helps limit any significant downside, enabling me to learn from mistakes and live to fight another day.
Since I am wrong plenty of the time, the fact that I'm still around financially means that using stop losses well has been highly effective for me (although it truly is an art to learn, understand and use stops profitably and well).
The other important aspect of TA is make sure you seek confirmation of any on-chart indicators you are seeing. What may look like a lamb may in fact be a wolf. Instead of being impatient, wait until you hear if it is roaring or bleating before you approach.
Penny Stock Picks to Buy Using Technical Analysis for January
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Cocrystal Pharma, Inc. (COCP)
One of the hardest aspects of developing financial content is the window between performing the analysis and when the content gets published. Material events or even significant share price moves can often come into play in a meaningful way.
Case in point – Cocrystal Pharma, Inc. (COCP) spiked 16% higher on Friday, scooping up a good part of the gains we are expecting. Since Thursday, the stock showed a Doji trend-reversal candle on the Japanese candlestick chart after a moderate decline, $2.80 has been forming into a support level and current prices are looking quite compelling.
Add to that Cocrystal Pharma shares closed at their very high of the day on Friday (on greater-than-typical trading volume), and we believe that this one still has a lot more room to run toward and potentially above $5.00. However, it was actually the cup and handle pattern we first saw that got our attention (see chart).
A very complicated and involved analysis reveals a very simple set-up. If you decide to get involved, Cocrystal Pharma may be flashing massive "run away" signs if shares ever dip toward or below $2.80. Until then, many winds are at Cocrystal Pharma's back, from many angles.
Orgenesis Inc. (ORGS)
According to the money flow, about $8 million has come out of Orgenesis Inc. (ORGS) shares (more than the amount "going in") since October. Shares are mildly oversold, with the relative strength index (RSI) rising from 20 on Dec. 24 to about 40 now – nothing extreme, but meaningful enough to justify yapping about it here.
Since Nov. 30, of the 18 trading days, we've seen bearish candles 15 times. Of the three bullish candle trading days, two of them (Wednesday and Friday) were over the three most recent days.
I mention this now because most analysts do not put enough consideration into such a rarely watched sentiment indicator (ratio of down to up days, and more importantly, the shifts in the underlying trends of that ratio). Before a plant grows from the dirt, the first signs are typically when it pokes a stem or leaf out of the soil. Orgenesis stock is telling us that story with the almost-overlooked and oft-misunderstood changes in investor bias.
In my opinion, if you decide that getting involved with Orgenesis makes sense for you, I would buy and stay involved for as long as this "just getting started" uptrend plays out. Any time Orgenesis fails to maintain a gradual (and thus more sustainable) rising trend, look to cut losses.
Americas Silver Corporation (USAS)
From a fundamental perspective, I expect silver mining companies to be among the best performing investments in 2019. So why are we talking about them from a TA basis?
Well, Americas Silver Corporation (USAS) was the only stock from hundreds that made our cut from both the fundamental analysis and technical analysis aspects. The share price has just reversed a long, drawn-out downtrend from $5.00 a year and a half ago, and trading activity has been bursting strongly higher.
Just Wednesday, Americas Silver shares broke $1.45 resistance, and the stock traded as high as $1.79 on Thursday. I typically prefer oversold shares for TA, but Americas Silver is actually slightly overbought (RSI is at about 58, so the metric is meaningless right now and should be ignored). That may partially explain why investors were so quick to sell shares into the price strength, bringing this one back to $1.64 on Friday.
Trading activity is also picking up a lot – day over day, month over month and year over year. Whether you are a technical trader or fundamental investor, I feel strongly that Americas Silver stock will entertain higher prices from here.
If Americas Silver shares break above $1.80, this one may never look back. If the stock starts heading lower, and especially if prices dip below $1.30, you may want to jump ship.
iPass Inc. (IPAS)
Long-legged Doji. Long-legged Doji. Then two days of negative trading ... and since then, iPass Inc. (IPAS) has been nothing other than rising.
The Dojis, which showed up near the bottom of a downtrend (as they tend to do), represent indecision among investors. Thus, they often indicate a reversal of the prevailing trend, which in this case would be a shift from downward to upward.
Shares have been held between $1.65 and $1.50 (even including the trading from the extremes of the long-legged Dojis), and it was not until Friday that iPass shares broke out by smashing through that $1.65 price level, even reaching up to as much as $1.80 before falling back to current levels of $1.66.
The selling from $1.80 is actually quite a bearish indicator, but it may be interesting to note that the shares stopped short of $1.65.
My submission is that the $1.65 level (which used to be resistance) has become support, and that is why the shares have thus far maintained just above that level. The situation also leads to a lower-risk, higher-reward set-up for investors looking to eject from the investment if the stock dips below $1.55 or so and certainly if it drops below $1.50, in my opinion.
ArQule, Inc. (ARQL)
As of five trading days ago, ArQule, Inc. (ARQL) was heavily oversold (with an RSI of 20), and the shares were at their lowest price in 10 months. Since then, buyers have seemed to wake up, holding the line at $2.25, causing the RSI to move toward 40 and pushing share prices as high as $2.88.
The $2.25 level may have represented a bottom and looks like pretty solid support. There is also resistance at the $2.80 level, so shares may be range bound between those two points for now.
However, the trend shift and momentum are both telling the same story – ArQule stock is going to take a run at breaking out. If successful, look for these shares to move toward prices of $3.50 to $3.75.
Be ready if this one breaks above $2.80, because that may just represent the start of a more significant move higher. Watch the potential downside, which would be illustrated by any dip below $2.50.
Plug Power Inc. (PLUG)
Plug Power Inc. (PLUG) is a stock that will decline in price according to some of the TA patterns. Let's go day by day through the candlestick chart – four days ago, we almost got a perfect marubozu candle (a very bullish sign); three days ago, there was a bearish meeting line relationship between that and the previous day; and Monday, we saw a bearish outside engulfing candle.
Everyone's interpretation will be different. To me, this speaks of a rally that ran out of steam, which was further evidenced by the declining trading activity each day over the past four.
It should also be noted that the big gain (on the marubozu day) was after 17 straight days of bearish and negative candles. In other words, the stock saw one pop higher after being squeezed lower consistently and daily for nearly an entire month of trading. You will very often see a big move to the upside in this sort of situation.
In the case of Plug Power, the leap from $1.02 to $1.31 may have been just a single day of strength before the resumption of the downtrend. My belief is that $1.36 is the absolute ceiling and that shares will be coming back down in the next few weeks.
The Goldfield Corporation (GV)
The heavily oversold shares (RSI was below 20 a few weeks ago) are now being bought up strongly. Prices have started to march higher for the first time in six months, and The Goldfield Corporation (GV) just broke its negative trendline as of Wednesday.
The price of $2.00 per share represents a very strong support level and is only 15% below current prices. Most "weak hands" were shaken out of Goldfield, specifically starting on Dec. 13 on a massive day for trading volume but then extending for several more days until anyone looking to sell the shares had almost certainly done so by that point.
The shareholder profile is leaning more toward newer investors, who by their very nature are much less likely to sell any time soon. This means the "supply" of GV shares will likely be constrained somewhat, and thus, any buying demand could have an outsized influence on share prices.
Go with the breakout from the elongated downtrend, and trust in it until you see the first negative day. Then, reassess everything, specifically to determine if this bullish trend will remain intact or if it is breaking down.
Arcturus Therapeutics Ltd. (ARCT)
Today (as of the time of writing this), a perfect marubozu candle showed up at the bottom of a downtrend. That is a very bullish sign and may presage the beginning of a trend reversal and a long-term (many months) climb higher.
Arcturus Therapeutics Ltd. (ARCT) was trading as high as $6.40 just six trading days ago and now has shown buying strength, pushing prices up as high as $4.67 so far today. Today's activity looks to have broken the downtrend, and if the next day's events show further strength, then you have your confirmation that the future for this stock will be much higher prices.
If this one dips at all or trades sideways, the patterns have failed. However, if shares rise over today and the next trading day, the trend for Arcturus Therapeutics will be toward higher prices.
The Bottom Line
By waiting for confirmation in any on-chart set-up you see and combining that with effective stop-loss orders, you will dramatically improve your investment results. Probably.
The rules of the investing game have shifted since October, which was the point where the scales tilted away from greed and more toward fear. Personally, I believe that this trend will continue, but even if it does not, TA will be helpful in identifying and capitalizing on whatever scenario presents itself.
Peter Leeds is the author of several books, including the international bestseller, "Penny Stocks for Dummies." He and his team also issue a newsletter devoted exclusively to penny stock picks and analysis, as well as a popular YouTube channel - PeterLeedsPennyStocks.
<Important disclaimer: Penny stocks are volatile and can generate catastrophic losses. Price levels in this article are hypothetical and do not represent buy recommendations or investment advice. Keep in mind that it's your responsibility to make trading decisions through your own skilled analysis and risk management. The author held no positions in the aforementioned securities at the time of publication.>