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If you've been with me for a while, you'll know I'm not a huge fan of the tech sector.
I know, I know - that's practically heresy coming from a stock-market guy, but I can't dance around it. I'm on the record.
I don't hate it, and I don't scrupulously steer clear of tech stocks, mind you. I don't really think there's anything wrong with tech stocks, aside from maybe some wonky valuations. It's just that I believe the serious growth for the next decade or so is going to be found elsewhere.
I often say the green energy sector is the "new tech," for instance, not just because it's technology-driven, but because it's going to generate big-time returns from here on out.
Having said all of that... I'm about to eat my words - just a bit. More of a light snack, really.
And I don't mind, because today, I'm recommending we move into a fast-moving, small-cap tech penny stock that's just experienced a series of profit catalysts that'll send it much higher from here.
You've Got to Listen to the Data
The data is telling me, "Hey, your own personal tech sentiments aside, this tech stock is going higher. Much higher."
The tech stock in question is Netlist Inc. (OTC: NLST). It's by no means a household name like Alphabet Inc. (NASDAQ: GOOGL) or Intel Inc. (NYSE: INTC). Then again, the shares don't cost "Google money," either - those were trading somewhere north of $2,400 last I checked.
Netlist trades for just under $8 right now. It's a 21-year-old company based out of Irvine, Calif., that manufactures and sells all kinds of memory subsystems for computers and communication devices. That's "memory" as in storage, but also flash memory and DIMMS that boost a device's performance.
I've been tracking NLST for months now, and I recommended the shares to my free Penny Hawk readers earlier this month, and those who were following along with me have already pocketed nearly 17%. Over the same time frame, the S&P 500 is up less than 2%.
The technicals look favorable right now, too.
This Is a Very Bullish Chart
Daily volume spiked a few days ago, but is beginning to rise again - always a bullish sign.
The stock has punched through and is now comfortably above its 20- and 50-day moving averages (MA20, MA50). It's riding near the top of the upper Bollinger band, and its relative strength index reading (RSI) is pushing 70 which, admittedly, takes it close to "overbought" territory, but that's not necessarily a red flag.
In fact, Commandment No. 6 of my 10 Commandments of Trading Penny Stocks says, explicitly, "Overbought can always become more overbought." This works in penny stock traders' advantage almost every time. Low-dollar names have a tendency to run as the crowd begins to become aware of a breakout.
And when a penny stock is on a run, it moves in much larger magnitudes than a larger-cap name. Think about it - a $0.50 stock can get to $5 much more easily than a $50 stock can make the same 900% jump to $500.
For this reason, low-dollar and penny stocks have a natural tendency to shoot into technically overbought territory. In a big-cap, that'd have traders eyeing the exits, but it's different for penny stocks.
Netlist is benefitting from some favorable business developments, as well. It was involved in litigation with Samsung for "material breach of various obligations" under a joint development and licensing agreement, and a California Federal District Court judge just granted a summary judgement for Netlist. Some traders are "selling the news" on this one, but they should be buying.
Whatever your feelings about tech stocks - love, hate, or in-between - you've got to move when the numbers tell you to move, and that's what they're saying about NLST.
I'm targeting $9 territory with this stock, which is 21% higher from here. Buy this one up to $7.50 and set a 7% trailing stop to protect your principal and your profits.
As a non-tech guy looking to profit from a tech stock, I'm living proof that flexible, open-minded investors who play the right small stocks can realize incredible profit potential.
I'm reading about this groundbreaking new market right now. It's currently worth "just" $1 billion or so, but it could soon be worth $400 billion. In fact, some of the world's richest, most successful investors are moving in, too, like "Shark Tank's" Kevin O'Leary, and big banks like Morgan Stanley. One of those investors has already raked in $316 million. I know a Silicon Valley insider who thinks 23 stocks in this market could jump 1,000% in just 12 months, even though they cost pennies on the dollar right now. Here's what it's all about...
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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 Penny Hawk. He also contributes to Money Morning as the Quant Analysis Specialist.
