I watch a lot of penny stocks for my free Penny Hawk e-letter readers. And when I see something that looks profitably promising, I let 'em know.
I've had my eye on one in particular for more than a week now.
For a penny stock, its market cap is on the bigger side, at $864 million, and shares trade for just $8. It builds materials designed to boost Internet speeds and beef up the amount of traffic the lines can carry.
The stock itself is showing me an absolutely beautiful technical setup that I think points to predictable profits - with a high likelihood of a much bigger breakout before long.
Let's take a look at the chart...
This Is a Fantastic, High-Profit Setup
The stock I'm talking about is Lightwave Logic Inc. (OTC: LWLG), based out of Englewood, Colorado.
Shares had moved above their 50-day moving average, but then fell down below their lower Bollinger band.
It seemed like LWLG would go as low as $4... until an interesting technical move happened: That $4 level seemed tasty to investors, and it drew volume from the market, and the stock regained support.
Which means right now we have a prime opportunity to move into this stock and make a predictable profit and, like I said a minute ago, the shot at a much larger breakout.
Bouncing back from that $4 support level, shares are now breaking above their 20-day moving average.
The $8 to $8.91 gap provides a nice 11.4% return - and we're going to take it.
But if it breaks above its 50-day moving average at $8.91, this will mean that the stock could break above its top Bollinger band.
The last time this happened, LWLG went parabolic.
Which is why today, you've got a chance to parlay an 11.4% gain into a potential 50% return.
The stock is looking tasty again, for sure; the charts and data are drawing in more buyers, and today, before the market closes, you want to be in position to profit.
Now, this is a penny stock - one that's moved quite a lot recently, as these stocks will do - but my secret weapon for raking it in (and keeping it) on small, volatile stocks, is the trailing stop. It's so easy to use that I can't imagine why everyone doesn't use them. It's a stop that moves with the stock, making it a cinch to protect your principle as you capture profits.
Here's what to do.
Buy LWLG shares at market, and immediately enter a 7% trailing stop - I'm talking as soon as you open the position. This'll protect you in case the stock fails to punch through that 20-day moving average, which could result in a re-test of the $6 level.
As incredible as this profit potential is, it can often be even cheaper...
These kinds of stocks - $8, 5$, $2, and even less - are an almost completely untapped corner of the market; they're practically blacklisted. In fact, I know one Wall Street firm that actually prohibits its brokers from offering these to clients. Can you believe it? This is despite the fact that these cheap stocks are producing some of the biggest gains in the market - exceptional performers have seen 2,953%... 4,801%... 12,754%... even 22,207% in less than a year. You've got to see this interview my colleague Shah Gilani did talking about the extreme profit potential in this class of stocks - you can do that here.
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.