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5 Biotech Stocks Under $10 Set to Soar

Written by: Roberto Pedone 07/19/12 - 11:58 AM EDT
Tickers in this article: DEPO SQNM NAVB GNOM HALO

Traders should now look for long-biased trades in SQNM if it can manage to trigger a breakout trade above some near-term overhead resistance at $4.17 to $4.34 a share, and then some more resistance at $4.57 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average volume of 3,593,210 shares. If we get that action soon, then SQNM could easily setup to spike big back towards its May highs at $5.44 to $5.83 a share. Make note that if SQNM takes out $4.34 a share, then it will push the stock through both its 50-day and 200-day moving averages, which is technically bullish price action.

If you're bullish on SQNM, then one could buy off weakness and simply use a stop near its previous support zones at $3.64 to $3.45 a share. If you get long off weakness, then I would add to the position once SQNM clears those breakout levels mentioned above with high volume.

This stock is a favorite among the short-sellers. The current short interest as a percentage of the float for SQNM is extremely high at 26.3%. If we see volume start to move into SQNM and the stock takes out those near-term resistance levels, then a massive short-squeeze could easily kickoff that sends this stock skyrocketing. DepoMed

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Another under-$10 name in the biotechnology and drugs complex that looks ready to trigger a major breakout trade is DepoMed (DEPO) , a specialty pharmaceutical company initially focused on neurology, pain and other diseases of the central nervous system. This stock is off to a decent start so far in 2012, with shares up over 8%.

If you take a look at the chart for DepoMed, you'll see that this stock was whacked by the bears back in late April, with shares dropping from a high of $6.64 to a recent low of $4.75 a share. During that downtrend, shares of DEPO were consistently making lower highs and lower lows, which is bearish technical price action. That said, DEPO has started to rebound sharply since hitting that $4.75 low, with the stock now making higher lows and setting up for higher highs. Shares of DEPO have now moved into position to trigger a major near-term breakout trade.