Penny and low-priced stocks struggled in July, with seasonal headwinds kicking into gear. The Russell 2000 failed to post a new high, while the Nasdaq 100 surged to an all-time high, signaling a rotation out of small caps and into big tech stocks. Gold and silver fell to 52-week lows, putting pressure on junior miners, while capital rotated out of junior biotech stocks into big caps. Penny stock pickers booked modest returns in these tough conditions, while trend followers and dart throwers took losses.
Trade wars should favor domestically focused small caps and low-priced stocks in coming months, but individual sectors could incur steep losses if they wind up on international tariff black lists. Retaliation by China and NAFTA members has been hit or miss so far, making it hard to predict which sectors may be targeted for pain. It's best to follow the money in this type of environment, focusing on the strongest players while avoiding dip buying and bottom fishing. (See also: Trade War Threatens Small-Cap Stock Juggernaut.)
The July penny stock list generated mixed returns, with precious metals and biotech headwinds limiting gains while a mid-month crude oil reversal undermined small energy plays. Many out-of-favor market groups just ran in place, lacking the speculative capital needed to generate sizable rallies or declines. The trend toward fewer opportunities may continue because we're entering the summer dog days, which often generate the lowest trading volume of the year.
Penny Stocks to Keep Watching
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1.Senseonics Holdings, Inc. (SENS)
Senseonics Holdings shares rallied to $4.24 in 2016 and turned sharply lower, hitting an all-time low at $1.26 in May 2017. The stock then turned higher, carving a healthy recovery wave that ended at $3.67 in October. Price action into June 2018 completed a cup and handle breakout pattern that posted an all-time high at $5.29, followed by a pullback that has continued into late July. Strong support between $3.50 and $3.80 could offer a low-risk buying opportunity ahead of continued upside that could may reach into the double digits.
2. Neptune Technologies & Bioresources Inc. (NEPT)
Neptune Technologies & Bioresources stock hit an all-time high at $6.09 in September 2007, shortly after coming public at $4.55. It sold off to an all-time low at 28 cents during the 2008 bear market, while the subsequent recovery wave stalled above $5.00 in July 2012. A brutal decline into August 2017 ended 42 cents above the 2008 low, yielding a vertical rally wave into February 2018. The stock hit a five-year high in June, while a pullback through July has just filled June's breakaway gap, setting off a buying signal.
3. Denbury Resources Inc. (DNR)
Denbury Resources shares hit an all-time high at $40.32 in June 2008 and fell with world markets, posting a three-year low at $5.59. The stock posted a lower high in 2011, ahead of a severe decline that finally ended at an 18-year low in 2016. Denbury Resoruces tested the low in September 2017 and bounced strongly, entering a trend advance that reached 2016 resistance at $4.80 in May 2018. It broke out in June, hit a three-year high at $5.56 in July and is now testing support at the 50-day exponential moving average (EMA). A bounce at this level could gain traction, generating an uptrend toward 2015 resistance between $6 and $8.
4. Cerecor Inc. (CERC)
Cerecor came public at $4.95 in November 2015 and dropped into a trading range with support near $2.70 and resistance at $5.00. It broke down in the fourth quarter of 2016, entering a decline that hit an all-time low at 34 cents in April 2017. The subsequent bounce reached 2016 resistance in February 2018, generating a rounded consolidation pattern that may complete a multi-year cup and handle breakout pattern. A rally above $5.00 could attract sustained buying interest, ahead of a test of stronger resistance at $5.75. (For more, see: How to Pick Winning Penny Stocks.)
New Penny Stock Picks for August
5. Cas Medical Systems, Inc. (CASM)
Shares of Cas Medical Systems hit a multi-year low at 90 cents in 2009 and bounced to $3.90 a few months later. That marked the highest high in the past nine years, ahead of a slow-motion decline that broke the prior low in 2017, dropping the stock to an all-time low at 59 cents in December. It turned higher in January 2018, entering an uptrend that reached 2016 resistance at $2.15 in June. It has been consolidating in a triangle pattern since that time, completing the last stage of a cup and handle that will target the 2009 high following a breakout.
6. Capstone Turbine Corporation (CPST)
Capstone Turbine stock tested the 2002 low at $10.20 in March 2009 and bounced into a new uptrend that ended at a five-year high in the lower $50s in 2014. The stock rolled over and broke long-term support in 2015, triggering downside that reached an all-time low at 58 cents in September 2017. Buying interest surged a few weeks later, generating an uptrend that stalled at 2016 resistance near $2.00 in April 2018. The triangular consolidation since that time may complete the handle of a cup and handle breakout pattern that targets $3.00 to $4.00. (See also: Analyzing Chart Patterns: Cup and Handle.)
7. Ceragon Networks Ltd (CRNT)
Ceragon Networks stock hit 88 cents in 2002 and entered an uptrend that reached $21.89 in 2007. It then entered a long-term downtrend that tested the prior decade's low in February 2016. The stock completed a triple bottom reversal at that level one year later and entered an uptrend that stalled at $4.23 in February 2017. It sold off to $1.64 in November and turned higher, completing a round trip into the prior high in June 2018. A pullback to the 50-day EMA got bought, while the bounce into July may complete a cup and handle pattern that targets $7.00.
8. Vivint Solar, Inc. (VSLR)
Vivint Solar came public near $17.00 in 2014 and entered a downtrend that posted an all-time low at $2.16 in May 2016. It ground sideways into 2017 and turned higher, topping out at $6.09 in June. A pullback into February 2018 posted a higher low, while the rally since that time has now reached the prior high. On-balance volume (OBV) has lifted to an all-time high, indicating that a four- to six-week consolidation pattern at or near this level may complete a major breakout that targets the low double digits. (See also: Top 3 Solar Stocks.)
The Bottom Line
August's penny stock list features a number of potential cup and handle breakout patterns that could reward risk-conscious traders. However, it's best to keep stops tight because trade war volatility could affect price action into 2019. (For additional reading, check out: Penny Stocks to Buy Using Technical Analysis.)
<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 Vivint Solar shares in a family account at the time of publication.>
