Examining Penny Stocks with Technical Analysis

Technical analysis (TA) involves the careful study of a stock's chart patterns and trends. Although this set of skills may seem daunting at first, even beginners can incorporate a few select TA methodologies into their investing strategy to great success.

TA can be especially helpful when predicting the movements of penny stocks because of their volatility—provided there is enough trading volume to back up the patterns you're trying to find.

Below, you'll find a list of some penny stocks with interesting technical setups. Remember to move quickly and exit your position if the stock isn't behaving as you expect it to, because this may mean that the trend or signal has changed or failed.

Some of the setups described below may no longer be relevant or intact when you read this article. Please conduct your own due diligence. Note that penny stocks are notoriously volatile.

New Stocks to Watch

Gaotu Techedu Inc. (GOTU)

GOTU is a Chinese-based technology education company with a market capitalization of about $600 million as of Jan. 2, 2023, making it a small-cap company. The company's main expertise is the provision of online kindergarten-12th grade courses worldwide. It also provides online after-school tutoring to K-12 students in mainland China. The company was formed in 2014 and has its headquarters in Beijing.

In January 2021, GOTU traded as high as $149.05. It has since been in a long downtrend. This past November the stock was trading for less than a dollar per share. It has since recovered and appears to be performing better. After recovering from its November 2022 lows, it proceeded on an impressive price rise. The stock traded as high as $4.25 in late December 2022 (see chart below). It had a brief reaction but looks set to attempt to test the December highs again.

A daily price chart of GOTU showing the rising price.


Vyant Bio Inc. (VYNT)

Vyant Bio Inc. (VYNT) is a small-cap company in the health-care sector and biotechnology industry. Its market cap as of Jan. 6 was about $4 million. It was founded in 1999 in Cherry Hill, New Jersey. The company is involved in drug discovery for complex neurodevelopmental and neurodegenerative disorders.

After gapping up to hit a high of $84.50 on Feb. 10, 2021, the stock reversed to enter a sustained downtrend through the remainder of 2021 and 2022. The gap up on Jan. 5, 2023 (see chart below), may point to the stock finally finding a bottom. The whole area of the gap becomes support. Therefore, if the stock can stay above the lower level of the gap when it tests support, that will be a successful test and might point to more positives for the stock price.

A daily candlestick chart showing the gap up in Vyant's price on Jan. 5, 2023


Safe Bulkers Inc. (SB)

Safe Bulkers Inc. (SB) is a small-cap shipping stock in the industrials sector. The stock tipped over and entered a downtrend in June 2022. It found support at its 200-day moving average and proceeded to trade sideways, making a series of higher lows in the process.

The positive divergence of price and the  moving average convergence divergence (MACD) is further evidence of a possible future change in the prior downtrend. The stock's price has now moved above the 50-day moving average and the moving average is turning up (see chart below). The price still appears to be trading sideways, so a definitive break to the upside will give proof that it has left its downtrend behind and is possibly entering a new uptrend.

A daily chart of Safe Bulkers Inc. (SB) showing the positive divergence of price and the MACD indicator.


Atara Biotherapeutics Inc. (ATRA)

Atara Biotherapeutics Inc. (ATRA) is a small-cap biotech stock in the health-care sector. After touching a high of $28.20 in December 2020, its price plunged to reach a low of under $3 in August 2022.

However, green shoots of promise seem to be appearing, after the successful test of the prior lows. In December 2022, the stock dipped and found support at the level of the August 2022 lows. This was a successful test and the stock proceeded to move higher in December 2022 (see chart below). It's possible that support will hold and price will continue to move higher, but there are no guarantees in technical analysis.

Daily price chart showing a successful test of prior low.


Article Sources
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  1. Yahoo! Finance. "Gaotu Techedu Inc. (GOTU)."

  2. PR Newswire. "Gaotu Techedu Announces Third-Quarter of 2022 Unaudited Financial Results and a Share Repurchase Program."

  3. Yahoo! Finance. "Vyant Bio Inc. (VYNT)."

  4. Vyant Bio. "FAQ."

  5. Safe Bulkers. "Safe Bulkers Inc."

  6. Atara Biotherapeutics. "Atara Bio."

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