For those of you who are tuning in to this column for the first time or who haven't watched the videos I've posted on the Peter Leeds YouTube channel, allow me to present here a short synopsis of my expectations for the economy over the next decade.
My team and I believe that the markets have already seen a blow-off top, and the ensuing downcycle could last as long as the next 10 years, in my opinion. In fact, all the pillars of the economy – including manufacturing, retail, and retail – are crumbling as the reality of the recession sets in.
So what now? I believe that a strong grasp of technical analysis has never been as important as it is right now. There's no doubt in my mind that the penny stocks I list below will see a healthy amount of volatility in the next few months, but this could be to your favor if the patterns play out as I expect.
Due to the time constraints inherent to technical analysis, some of the patterns, signals, and set-ups I describe below may no longer be relevant or intact as of the time you read this article. Please ensure you conduct your due diligence when looking at the trading charts and data for the following stocks.
Many of the stocks mentioned here were also profiled, traded, or otherwise discussed in the Peter Leeds Newsletter. Peter may furthermore own shares in some of the investments mentioned, in which case that fact will be clearly indicated. (See below for an additional disclaimer regarding penny stocks.)
Ambev S.A. (ABEV)
As of the second-to-last day of January 2020, this Brazilian brewer's chart appeared to be showing a nice hammer candlestick pattern at the end of a dispiriting downtrend, suggesting that Ambev S.A. (ABEV) should see a bullish reversal from here.
It's important to make sure that you see sizeable trading volume underlying any apparent candlestick patterns. Failing that, you may pick up a false signal. In Ambev's case, however, the stock is getting a lot of investor attention (with 1.44x its average volume of 15.81 million), which supports my thesis that prices should climb over the month of February.
Dynatronics Corporation (DYNT)
Dynatronics Corporation (DYNT) stock is being pulled up and down in a fierce battle between bears and bulls, but an inverted hammer (with a long upper wick and shorter body at the bottom) at the end of January may be heralding an upcoming winning streak for the bulls.
Admittedly, the inverted hammer doesn't appear at the end of a long downtrend, which would make it a much stronger signal. However, the past day's explosion in trading volume for this medical appliance firm, perhaps due to coronavirus fears, leads me to believe that substantially higher prices lie ahead.
Daseke, Inc. (DSKE)
Shares of troubled trucking firm Daseke, Inc. (DSKE) have sunk 27% in value over the past year. However, a series of doji and spinning top candlesticks at the end of January, on the heels of the company's preliminary results announcement, may be indicating investor uncertainty – and, subsequently, the possibility of a bullish trend reversal over February, in my view.
Notably, as of the time I was writing this article, trading volume wasn't quite as strong as I would have liked for this inverted hammer set-up. I suspect that volume will increase over the course of the day, but just to be safe, I will put some conservative stop-loss prices in place in case the pattern fails.
Altimmune, Inc. (ALT)
This chart is still very much a work in progress, but as of the time I was writing this column, it looked like an inverted hammer candlestick had turned up for Altimmune, Inc. (ALT), potentially indicating better things ahead for this depressed stock. After a near-50% drop in value over the past year, Altimmune investors will no doubt cheer.
I would keep a conservative stop-loss price level on this one, however, as trading volume wasn't very high as of the morning the inverted hammer had formed – thus putting into question the strength of the candlestick pattern. Keep a close watch here, and if the trade seems to be going pear-shaped, abandon ship.
RigNet, Inc. (RNET)
Technology firm RigNet, Inc. (RNET), which among other things provides cybersecurity solutions and technology services for onshore and offshore drilling rigs, currently has a low relative strength index (RSI) of 28.44. If you've read this column before, then you likely already know that the RSI is one of my favorite technical indicators. This is because it has an uncanny ability to let investors know when a stock is about to enter a favorable (or negative) new trend.
In RigNet's case, we could see the stock returning to the $7.50 levels and higher if the company's results, set to come out on Feb. 6, are deemed positive by shareholders. A note of caution: RigNet's beta is 1.75, indicating that it's a volatile stock. (No surprises here: the equity has roller-coastered between $4 and $16 per share over the past 52 weeks.) This is not, consequently, a stock for the faint of heart.
Atlas Financial Holdings, Inc. (AFH)
A multiple bottom pattern after a prolonged downtrend for Atlas Financial Holdings, Inc. (AFH) is signaling that a trend reversal may already be afoot for the stock. In fact, Atlas Financial shares climbed 27% over the past month after suffering a stunning fall in May 2019 from $1.50 to $0.60.
Bears have wrested control of Atlas Financial stock since then, but the multiple bottom and subsequent price rise indicate that there may be a lot more fun ahead for bullish investors as they take over the reins.
The Bottom Line
As the smoke and mirrors of our previously delusional economy clear away, I'm confident that investors can still profit substantially – especially if you apply the precepts of technical analysis to the charts you're seeing and you act quickly and thoughtfully enough.
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.
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.