I recently showed my Straight-Up Profits readers how looking for the shift in momentum, technical trends, and volume will always show you which stocks are about to experience a sudden, steep spike - a breakout - and how as traders, we can make money whether that spike goes up or down.
These breakout stocks have some signatures that are telling of upcoming activity. In the same way that your reflexes kick in when the doctor hammers your knee, a stock will react aggressively when those three specific things happen at the same time, which I'll explain in more detail in a minute.
Every single stock on the market, whether it's $20 or $2,000, behaves like this.
So today, I'll be sharing with everyone two low-dollar stocks that fulfill the above criteria... and how you can profit from them.
I prefer to use this strategy on microcap stocks because of their larger magnitude toward the upside. It doesn't take much for a $1 stock to double or triple your investment, and it certainly doesn't take much for a $0.10 stock to do so, either.
These two penny stocks are "in play," and I'll give you the exact prices to buy in...
Penny Stock Recommendation No. 1
As promised, let's quickly review the criteria I mentioned above before we dive into my first recommendation.
So when I say shift in momentum, I'm specifically talking about a shift in momentum within normal distributions. It's not a spike because we're predicting the spike and positioning ourselves to profit before the spike happens. Instead of a spike, the statistics are completely normal. This part is absolutely crucial - the statistics must be normal.
"Normal" activity means that the prices are moving within a certain tolerance, like Bollinger bands, also known as the volatility bands. By tracking normal distributions, we can also predict when the stock will make an unusual breakout.
Second, we're looking for a steep shift in the technical trends. The reason that they matter more is because the market reacts to technicals. You see, signatures of a breakout are increased in the slope of a 20- and 50-day moving average. That's just a fancy way of saying that you're looking for a steep shift in the technical trend. Like I always say, the trend is your friend.
The two most-watched trends are the 20- and 50-day moving averages. Typically, a bullish crossover will precede a bullish breakout, and a bearish cross under suggests an upcoming breakdown.
Our third and final sign is increasing volume while technicals are shifting. Volume shows that the market is participating in the price surge - it's what turns a price surge into a profitable opportunity.
And now that you have a clear idea of our strategy, let's get into my stock recommendations...
First up, we've got Bombardier Inc. (OTCMKTS: BDRBF), which you should buy at around its current price of $1.14. Based in Montreal, Canada, BDRBF was once a manufacturer of commercial jets, public transportation vehicles, and trains.
But it's downsized its business, and today it focuses solely on private jets.
Take a look at the stock's chart:
As you can see, around mid-February, the momentum started to shift, thus fulfilling our first criteria: the shift in momentum.
We saw shares bouncing up and down within the 20- and 50-day moving averages for about a month. Then, the technical trend lines started moving higher, but they were still bouncing up and down within a normal distribution from April to June.
This fulfills our second sign.
Finally, the volume spiked in July, fulfilling our third criteria, and causing shares to explode vertically up.
But now volume is on the decline, and we're going to see a pullback.
Where does the stock go from here? Well, I'd look to buy shares at $1.14 and target a move to $1.40.
Penny Stock Recommendation No. 2
Next up is Atlanta, Ga.-based Health Discovery Corp. (OTCMKTS: HDVY), which I'm looking to buy at around $0.35.
HDVY is another stock that's exhibiting all the signs we just went over.
For nearly half a year, shares had been trading around the $0.04 to $0.06 range.
But around late April, we saw a bullish crossover in the technical trend lines. Two months later, we saw a major spike in volume, causing shares to rocket up to the $0.13 range.
After the "crescendo volume" - which is the volume surge - you see a sharp decline in the stock, and we saw that in June with HDVY.
But shares were still trading within a normal distribution and yet another volume surge caused prices to spike all the way up toward the $0.40 level. Now that the crescendo volume has happened, it's currently too late to get into this stock.
We have to wait for it to drop a bit. I recommend that you wait until HDVY drops down to around $0.35.
But keep in mind, this could change if the trend continues to move higher and higher. I'll be sure to keep an eye on both of these stocks and update you if there are any major developments.
I love using effective trading strategies on low-dollar stocks because if a $0.10 stock gains another dime, you've already recorded a 100% profit.
That's why I'm so excited to share my friend and colleague Tom Gentile's proprietary BRUTUS system, which locates all the different volatility events.
And in this volatile, post-pandemic market, we've seen as much as $11 million up for grabs every single day because of these events, so click here now to learn how BRUTUS can help you profit from volatility...
About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader and Straight-Up Profits. He also contributes to Money Morning as the Quant Analysis Specialist.