We are witnessing and living through a psychological shift from greed to fear that began in October 2018. Of course, greed still exists, and there always was some degree of fear. However, there was a not-so-subtle flight of billions of dollars in market cap from most stocks beginning in Q4 of the 2018 fiscal year.
This flight gained the attention of most investors, and whenever the broader exchanges misbehave, there is typically a wash-out in speculative shares. That means the "take a risk" appetites among individuals melted away, which killed the Russell 2000 for the entire month of December 2018 and put a great deal of negative pressure on all things "penny stock."
As of February 2019, the storm has been weathered; now it's time to benefit from all of the bargains and undervalued opportunities that have been created.
Penny Stock Picks to Buy Using Technical Analysis for February 2019
<See important disclaimer below.>
AMERI Holdings, Inc. (AMRH)
I tried very hard not to include AMERI Holdings, Inc. (AMRH) stock on this list. The trading volume is way too low, the industry is hyper-competitive, and I don't even particularly like the fundamentals. So, why mention it here?
The shares may have set up what could be one of the "sloppiest" cup and handle patterns I've seen, and if this plays out as would typically be expected, the share price should pop higher after a period of consolidation.
To that end, AMERI Holdings stock has been consolidating for 12 days. Generally, when the shareholder base turns over during this sideways trading - with newer optimistic investors replacing former and now frustrated shareholders - the stock's price breaks relatively quickly above the top of the cup's upswing, which in this case is 32 cents.
Energy Focus, Inc. (EFOI)
Despite being such a thinly traded equity, there are a lot of compelling technical analysis patterns I am watching in the case of Energy Focus, Inc. (EFOI) shares. The majority of these involves Japanese candlestick charting analysis, some of the findings of which reveal a dragonfly doji, outside bullish engulfing set-ups and a bearish Morubozu.
All of this has led up to the trading activity on January 31, and while the markets were still open at the time of writing, it is looking like we may be seeing a hammer – one of the most telling trend reversal patterns you’ll see on a chart.
The hammer should only be used to identify trend reversals, which brings me to the issue with Energy Focus – the stock is in a super-short-term uptrend (past five days), short-term neutral trend (past three weeks), medium-term uptrend (past month) and long-term downtrend.
So, I will ignore it completely and see if there is anything else going on with the chart. The stock may be forming a cup and handle pattern (implying an upcoming price spike), while today's long shadow (lower wick) on the candle shows a lot of buying strength when Energy Focus shares dipped.
As well, since bottoming at 60 cents about a month ago, shares have both consolidated and been trending higher. We expect that this momentum will extend much further.
All of this may explain why we discussed Energy Focus from a fundamental perspective in our other Investopedia blog (Penny Stocks to Watch) and now discuss it here as well from a technical analysis standpoint. (Of course, Leeds Analysis always factors both fundamental analysis an technical analysis into every stock we review.)
ARC Document Solutions, Inc. (ARC)
After displaying three black crows, the daily trading of ARC Document Solutions, Inc. (ARC) stock showed two trend-reversal indicators on the candlestick chart after a pretty significant price slide: a long-legged doji and a dragonfly doji.*
* Note: The markets were open as of the time of writing, which means that what looks like one pattern now may very well become something else by day’s end. All comments are based on analysis at the time we make them. Will the chart still have formed a dragonfly doji by four o’clock? We can’t know.
The long lower wick/shadow on today’s candle is a very bullish indicator – it demonstrates that investors "rejected" the lower prices and came in greedily to push the shares back higher. In addition, shares displayed a morning star pattern, which is a major trend reversal indicator. In this particular case, the analysis did not disappoint, and shares climbed significantly higher.
Whatever follows will be a clear indicator for future prices. If Arc Document Solutions stock is unable to hold these price levels, you will want to protect your downside. However, any reach toward or above $2.34 could very well represent the beginning of another uptrend, just like we saw from December 28 to January 8 ($1.85 to as high as $2.94 within six trading days).
Genius Brands International, Inc. (GNUS)
The two-month chart for Genius Brands International, Inc. (GNUS) may be showing a "loose" cup and handle set-up. I say loose because the pattern is far from perfect but perfect from far.
It may be worth looking into this one, because the set-up will either pay off soon (potentially 15% to 25%) or shares will dip below $2.40, in which case a well-placed stop-loss order would take you out for a small loss.
Keep in mind that Genius Brands stock is relatively thinly traded, which can make stop-loss selling attempts less effective or even potentially very costly. This concern would only matter to you if you were trading a large block (20,000 shares or more).
If you were to look at a six-month chart, you would be able to pick up on two trends, both of which are potentially telling. Shares over that time have been primarily range bound, trading between $2.05 and $2.55. In addition, Genius Brands is in an uptrend, and with the price dip over the past few days, anything between $2.40 and $2.45 might be a wise buy-the-dip strategy.
If shares were able to break out above $2.60 resistance, this one might push toward $3.10. Just protect your downside with effective stop-loss strategies and remember that this one has very low trading activity.
Eastman Kodak Company (KODK)
Do you remember Kodak? It turns out that Eastman Kodak Company (KODK) is still in business.
Eight trading days ago, when the shares opened at 9:30 a.m., they were at $3.00 even. After sliding lower all day long, by 4:00 p.m. EST when the markets closed, this stock settled at $2.65. Big deal, right?
The reason that particular day caught my attention is that the seven trading days that followed ALL fell within that range ($2.65 to $3.00). Kind of like an engulfing pattern, only the engulfing day came first. If the bearish engulfing pattern came at the end of those eight days, then it could be expected that Kodak shares were about to fall hard.
Thus, what is really forming is an odd variation of an extended Harami pattern, which typically implies inbound bullish activity - a fancy way of saying, "the price should go up."
Personally, I would keep a stop-loss trigger somewhere near $2.60 to $2.70. What might work best is an "eject no matter what" sell order in the event Kodak shares dipped below the bottom of their wide trading day range from eight days ago, which would be exactly $2.65.
SITO Mobile, Ltd. (SITO)
The long-tailed candlestick patterns of the past four days imply strong buying each time the price dips. On the first day of that mini-cycle, SITO Mobile, Ltd. (SITO) traded as low as $1.42 before being driven back up to $1.49 at the close. The next day saw shares being "bought up" from $1.44 to close at $1.52. The two following days also saw any price weakness being welcomed by bargain hunters.
This all adds up to $1.50 being a new support level, but the trading activity has not been high enough to give enough reliance to that belief. However, immediately prior to those four days mentioned above, the SITO chart displayed a three white soldiers pattern, which is typically quite bullish.
Over the short term (a few weeks) and medium term (a few months), SITO is in an uptrend. It is in quite a strong drive higher over the entire month of January, and, in this specific case, I would suggest leaning on the old axiom – the trend is your friend.
Arcimoto, Inc. (FUV)
Behold: a cup-and-handle pattern, and a good one, on the chart of Arcimoto, Inc. (FUV). I'd always like to see more shareholder turnover (old being replaced by new) in the final/current part (see stage six, the handle), as the greater the percentage of newer/optimistic investors, the stronger and more dramatic the potential price spike.
However, the handle (which is forming between $3.00 and $3.50) does have the shares scraping along the bottom of that short-term range. That may mean that current prices will not only allow you to get in on a cup and handle set-up but also get in on a cup and handle set-up at the low end of the handle's range.
You want that in understandable language? Here's the skinny: if the cup and handle pattern plays out as they typically do, this stock will spike toward $4.50 within a week or two - if the set-up does cooperate. If you buy at the lower end of the handle's range and the pattern does what we expect, then you make even more.
Notice, I said "as they typically do." I say that since, as any technical analyst would tell you, even textbook, 100% perfect patterns very often go the exact wrong and unanticipated way.
Too many inexperienced investors put far too much trust in technical analysis, so you need to protect yourself from downside every time. The way most traders do this is with a stop-loss sell order, in case shares dip for any reason.
Turquoise Hill Resources Ltd. (TRQ)
I was trying to avoid using Turquoise Hill Resources Ltd. (TRQ) for this blog since the company was mentioned a few times in another Investopedia blog we produce (Penny Stocks to Watch). However, there were just far too many great technical analysis patterns on the chart, the majority of which were Japanese candlestick charting patterns.
Specifically, there were instances of bearish meeting lines, as well as dark cloud cover and an outside engulfing pattern, all of which played out exactly as the patterns implied they would – which is heavily negative. Don't worry if you aren't familiar with candlestick charting indicators – what was important in this particular case is that each of these negative patterns played out as implied nearly every time.
There were also bearish "kickers" and a few instances of three black crows. Shares slid much lower until the negative momentum and sentiment played out nearly fully.
Now, in more recent trading, there are some strong bullish indicators emerging. For example, three black crows led up to a bullish meeting line, which suggests this stock is about to enjoy a significant run higher from here.
December 24 may have been the pivot point for a V-Shaped bottom in the Russell 2000, and the index has done little else besides climb higher from there. Lower-capitalization shares have been avoided, unloved and mistrusted since October 2018, but now these smaller companies around us seem to be quickly climbing back into favor. Let's take our portfolios with them.
Countless brokerages exist in the industry these days. While many offer access to OTC and penny stock trading, some are better than others. Investopedia's list of the best brokers for penny stock trading can show you the top options in the industry for trading penny stocks.
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.>