Penny Stocks to Buy Using Technical Analysis for October 2019

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Penny Stocks to Buy Using Technical Analysis for October 2019

In my last “Penny Stocks to Buy Using Technical Analysis” column, I wrote that, after a tumultuous August, “A great deal more volatility related to recession worries (and flights to safe haven assets) should continue to be seen over the month of September.”

Sure enough, September was a roller-coaster ride for just about every penny stock investor out there as the market soared and dipped on all the political drama. This included, of course, the possible impeachment of U.S. President Donald Trump, the defeat in the Supreme Court of U.K. Prime Minister Boris Johnson’s bid to suspend Parliament, and further blows exchanged in the U.S.-China Trade War.

In these chaotic circumstances, I like to think of technical analysis as taking place in the eye of the storm. While other investors act like decapitated chickens, growing increasingly unhinged with every new political development to appears, the savvy trader with an eye for technical analysis waits calmly for the right technical patterns to appear before making his or her next well-strategized move.

For October, I’m looking at penny stocks ranging from Brazilian oil and gas refiners to an American telecommunications giant that has recently hit the skids but may be seeing a trend reversal any day now. With even only a rudimentary knowledge of technical analysis, I believe that investors like you may be able to successfully ride out the wildest fluctuations of a volatile market – and have fun doing it, too.

Due to the time constraints inherent to technical analysis, some of the patterns, signals, and set-ups I describe below may no longer be relevant or intact as of the time you read this article. Please ensure you conduct your due diligence when looking at the trading charts and data for the following stocks.

Many of the stocks mentioned here were also profiled, traded, or otherwise discussed in the Peter Leeds Newsletter. Peter may furthermore own shares in some of the investments mentioned, in which case that fact will be clearly indicated.

Consolidated Communications Holdings, Inc. (CNSL)

Telecommunications firm Consolidated Communications Holdings, Inc. (CNSL) was trading only a few months ago at around $12 levels. Then the news hit in May that the company would be scrapping its dividend, and investors fled Consolidated Communications in droves.

Today, I’m seeing a multiple bottom pattern for Consolidated Communications, meaning that the stock has hit three equal lows at $4, where it has a strong support level. If Consolidated Communications is now able to break above the resistance level it appears to have going at $5.40, this would be a very bullish sign indeed for this debt-riddled firm.

I’ll be keeping my eyes closely on this one, but if the trade isn’t going the way I expected, then I’m not sure this would be a long-term hold for me and my team given Consolidated Communications’ truly dire debt-to-equity ratio. 

Broadway Financial Corporation (BYFC)

As of the last week of September, a hammer candlestick pattern was shaping up for Broadway Financial Corporation (BYFC). A hammer, which has a small body and a long shadow, indicates that on a given day a stock was trading at much lower prices than the ones it opened with, but subsequently it rallied to close to that initial opening price. In other words, the bulls charged in and scared the bears away. 

You’re going to want to look for confirmation here, in the form of Broadway Financial stock reversing its downward trajectory and starting up a positive trend. But the relative strength index (RSI) at 33.72 also seems to be a good sign that the stock is substantially oversold at the moment. Admittedly, trading volume here is super-low, however, so I would wait to see more traders coming into the stock before fully trusting this signal and making my move.

Agile Therapeutics, Inc. (AGRX)

Drug-maker Agile Therapeutics, Inc. (AGRX) has been on a roller-coaster ride since March, with shares zipping up and down between approximately the $1.00 and $1.65 levels every few months or so. Now, after a quarter of losses to the tune of 27%, it’s looking possible that Agile Therapeutics may start moving up from $1.05, where it’s currently trading, back to $1.60 to $1.70.

This is because, as of September 26, a doji (which looks like a little cross on a stock’s trading chart) had appeared for Agile Therapeutics, signaling general investor indecision – and sometimes, accordingly, a trend reversal. 

A low RSI of 35 would also seem to confirm that Agile Therapeutics is oversold, in my opinion, particularly given the extremely high trading volume that is underlining all these signals. I wouldn’t be surprised if a lot of investors piled in here between $1.00 and $1.15, especially following the recent positive press from some major media outlets geared toward retail investors.

Enochian Biosciences Inc. (ENOB)

Truth be told, I’m not liking the biotech sector much these days, as the inherent industry-wide risk is feeling a little too high even for me given all of the other political uncertainty we’re dealing with. Nonetheless, Enochian Biosciences Inc. (ENOB) seemed to be going for a bullish inverted hammer formation at the tail-end of a September downtrend, which was heralded by a bearish marubozu candle on Sept. 20. While this pattern failed, the preponderance of dojis and spinning tops could indicate a positive trend reversal in the very near term. 

Enochian Biosciences currently has a RSI of 36 and a pretty good balance sheet, both of which support my thesis that a turnaround is in the works. But make no mistake: this is a stock idea for all of the investors out there who live on the edge and chase only the riskiest, highest-reward trades.

Key Takeaways

  • A penny stock refers to a small company’s stock that typically trades for less than $5 per share. 
  • Although some penny stocks trade on large exchanges such as the NYSE, most penny stocks trade via over the counter (OTC).
  • While there can be sizable gains in trading penny stocks, there are also equal risks of losing a significant amount of an investment in a short period.
  • Technical analysis techniques can help spot potentially profitable trades in penny stocks.

Ultrapar Participacoes S.A. (UGP)

In my opinion, a lot of good Brazilian stocks are being priced quite cheaply at the moment, after having been exiled to penny stock territory by general political strife in the South American region. It remains to be seen whether oil and gas refiner Ultrapar Participacoes S.A. (UGP) is indeed undervalued at the moment.

However, a bullish marubozu candle at the end of September after a small 0.68% downtrend in the previous week (and a general year-to-date downtrend amounting to an overall 35% loss in Ultrapar’s price) may be indicating that relatively higher prices can be expected for the stock in the month of October. Watch for confirmation in the form of a new uptrend in which Ultrapar prices are able to rally to at least the $5.50 levels and above.

US Auto Parts Network, Inc. (PRTS)

What looks to be not one but two inverted hammers appeared on US Auto Parts Network, Inc.’s (PRTS) trading chart at the end of September after a 10% downtrend in the preceding days.

I also note very high levels of insider buying at 210% lately, which may suggest that certain members of management are feeling good about US Auto Parts Network’s future outlook. Whether or not they’re right remains to be seen, but investors with an interest in technical analysis may want to follow this stock closely over October. 

Five Star Senior Living Inc. (FVE) 

My team and I spotted an imperfect bullish marubozu candlestick formation for Five Star Senior Living Inc. (FVE) at the end of September – imperfect because its wick extended slightly upward, and a perfect marubozu would appear in the shape of a rectangle without wicks or shadows.

This candlestick may be hinting that a trend reversal is in the works for Five Star Senior Living, after a long period of losses amounting to -16.24% over the past month. I note, however, that a couple of bullish marubozu candles in mid-September failed to play out as they should have, so you’re going to want to look extra carefully for confirmation here.

AK Steel Holding Corporation (AKS)

AK Steel Holding Corporation (AKS) has had a miserable 2019, dropping 53% in value during that time and seeing downgrade after downgrade from the investment banks, most recently JPMorgan, which double-lowered its rating of AK Steel from
“Overweight” to “Underweight” in the last week of September.

Despite this spate of bad news, the technical set-up for AK Steel was looking promising at the end of September, with an inverted head and shoulders pattern boding well, perhaps, for a turnaround in the company’s fortunes – at least, in the near term. High trading volume and an RSI of 38, as well as plentiful dojis and spinning top candlestick patterns, would also seem to support the trend, in my view.

Could October bring good news to AK Steel’s beleaguered investors? I’ll be watching closely to see if the pattern can be confirmed in the days following this article’s publication. This may not be a long-term hold for me, however, given the company’s weak balance sheet.

The Bottom Line 

I’m betting you probably aren’t afraid of a little hard work and risk; otherwise, you wouldn’t be taking the time to read this article! The good news is that your unique personality type may be just about the best one to benefit from our topsy-turvy stock market right now, with new billionaires being made and the old guard losing everything overnight.

As I explain on the Peter Leeds YouTube channel. the right strategic mindset and attention to technical detail will be your best friends on your investing journey, no matter what else is going on in the world. Make sure to keep your eyes on the prize in these crazy times.

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.

Peter Leeds is the author of several books, including the international bestseller, “Penny Stocks for Dummies.” He and his team also issue a newsletter devoted exclusively to penny stock picks and analysis, as well as a popular YouTube channel PeterLeedsPennyStocks.