Mega-cap and blue-chip stocks attracted the lion’s share of speculative capital in November, lifting major benchmarks to bull market highs. Buying interest in penny stocks and other high-risk securities waned, with market players concentrating their firepower on big tech and other groups expected to benefit from D.C. tax reform and deregulatory legislation. Careful stock picking paid off despite the headwinds, with a narrow selection of low-priced issues zooming to multi-year highs.

The market calendar is working its way toward 2018. That means the January Effect will soon be in full swing, marking the most favorable penny stock seasonality of the year. This bullish influence often unfolds in the last weeks of December so penny stock players should watch for a buying surge that might signal healthy gains through the first quarter. The well-documented phenomenon usually favors beaten down issues over the prior year’s top performers so building a watch list of stocks stuck near 52-week could be beneficial.

November’s penny stock picks booked mixed returns. Limelight Networks, Inc. (LLNW) broke out and rallied more than 20% to a 6-year high while junior biotech stocks recovered after a tough October, led by Sierra Oncology Inc.’s (SRRA) 30% surge to a 17% month high. The December list includes those issues, as well as three former candidates that continue to grind out bullish consolidation or breakout patterns.

Penny Stocks to Keep Watching

1. Medical Transcription Billing, Corp. (MTBC)

Medical Transcription Billing, Corp. (MTBCcame public at $5.00 in July 2014 and entered a persistent downtrend that continued into the April 2017 all-time low at 29-cents. It then took off like a rocket, rising nearly tenfold in less than three weeks before stalling at $2.64. A summer pullback found support near $1.20, yielding almost three months of basing action, following by a buying wave that’s been testing the prior high for the last two months. A rally above $4.50 should stoke the speculative fires, triggering a breakout over the IPO opening price and rally to all-time highs.  



2. Mannkind, Corp. (MNKD)

Mannkind, Corp. (MNKDhit an all-time high at $121.55 in 2004 and entered a brutal decline that found support at $9.30 in 2008. It held that level into a 2015 breakdown that dropped the stock to an all-time low at 67-cents in May 2017. Buying pressure since that time has been impressive, reaching a 52-week high at $6.96 in October, ahead of an orderly pullback that’s landed on the 50-day EMA. A rally above $3.70 should awaken strong buying interest, setting the stage for a recovery wave that tests the rally high. 



3. Kingold Jewelry, Inc. (KGJI)

Kingold Jewelry, Inc. (KGJIhit an all-time high at $11.95 in 2010, just five months after coming public, and sold off to 88-cents in 2011. The subsequent bounce stalled at $5.00, generating a trading range ahead of a 2015 breakdown that posted an all-time low at 49-cents in January 2016. A bounce into August stalled at range resistance once again while a pullback into March 2017 held high in the multiyear range. The stock returned to the barrier for the fourth time in October and is grinding sideways while accumulation has lifted to a new high, predicting a multi-year breakout. 



4. Limelight Networks, Inc. (LLNW)

Limelight Networks, Inc. (LLNWtopped out at $23.82 a month after coming public at $23 in June 2017 and dropped like a rock into October 2008, settling at $1.75. The subsequent bounce stalled at $8.97 in 2010, establishing range resistance ahead of a December 2015 breakdown that reached an all-time low at 90-cents in February 2016. It jumped back into the broken range in November 2016 and kept on going, rallying above the 2015 high and entering a new uptrend that could reach 2010 resistance near $9.00.



5. Sierra Oncology, Inc. (SRRA)

Sierra Oncology, Inc. (SRRAcame public at $28.68 in July 2015 and traded sideways into a September breakdown that gathered force into June 2016, when it gapped down, losing more than 60% of its value in a single session. The stock bottomed out near $1 in the summer of 2017 and turned higher into the fourth quarter, with buying pressure triggering the first breakout above the 200-day EMA in the stock’s public history. This technical strength bodes well for a deep penetration of last year’s sell gap between $6.40 and $2.96.


New Penny Stock Picks for December


6. Central European Media Enterprises, Inc. (CETV)

Central European Media Enterprises, Inc. (CETVended a multi-year uptrend at $126.53 in 2007 and sold off to $4.67 during the 2008 economic collapse. It bounced into the upper-30s at the start of the new decade and rolled over, entering a downtrend that broke support at the prior low in 2013. A 2-year rounded basing pattern generated a March 2017 rally that stalled at 4-year resistance in April, yielding six months of testing followed by a November breakout that could reach the 2013 high at $6.65.



7. EVINE Live, Inc. (EVLV)

EVINE Live, Inc. (EVLVposted an all-time low at 18-cents in March 2009 and bounced to $8.73 in 2011. The $1.50 level held during a pullback into 2013, generating a test at the recovery high that attracted aggressive selling pressure and a 2015 reversal. The stock broke support in January 2016, descended to a 6-year low at 41-cents and turned higher, generating a test at new resistance that’s now entered its second year. A rally above $1.60 should attract strong buying interest, favoring a healthy uptick into the September 2016 high at $2.40.



8. United Microelectronics, Corp. ADS (UMC)

United Microelectronics, Corp. ADS (UMCmanufactures semiconductors in Taiwan. It broke 5-year support at $4.00 in 2007 and sold off to $1.47 during the 2008 economic collapse. A bounce into 2010 ended at new resistance, generating a stairstep decline that undercut the 2008 low by 5-cents in August 2015. That penetration marked the bottom, ahead of an uptick that reached 2012 resistance at $2.77 in September 2017. The stock has spent nearly three months consolidating at that level, raising odds for a breakout that could reach 10-year resistance at $4.00.



9. Ladenburg Thalmann Financial Services, Inc. (LTS)

Ladenburg Thalmann Financial Services, Inc. (LTStested the 2007 high at $3.75 in 2013 and broke out, hitting an all-time high at $4.50 in October 2014. It pulled back into December, carving support at $3.30 that broke in July 2015, generating a volatile decline. Buyers emerged in September near $1.80 while two 2016 tests at that level completed a triple bottom reversal. The subsequent uptrend mounted base resistance at $2.80 in September 2017 and is now challenging the 2014 breakdown level while the strongest accumulation so far this decade predicts a healthy breakout.  



10. UQM Technologies, Inc. (UQM)

UQM Technologies, Inc. (UQMhit an 8-year high at $7.45 in 2009 and entered a 2-wave downtrend that may have bottomed out at 42-cents in January 2017. It took off in a strong May buying wave that posted a series of new highs into the fourth quarter. The uptick has now reached resistance at the 2015 high at $1.30, nearly completing a cup and handle breakout pattern that could support impressive upside into the 2014 high at $3.45. On Balance Volume (OBV) has reached the highest since 2015 this week, adding a brisk tailwind.


The Bottom Line

The majority of penny stocks could struggle into the second half of December, with outsized gains limited to the strongest performers. A broader buying wave may then set into motion, underpinned by highly bullish January Effect seasonality.

<Disclosure: the author held no positions in securities mentioned above at the time of publication.>

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