Speculative fervor increased in April, lifting a broad basket of penny stocks to 2017 highs. However, precious metals failed to join that bullish list, with junior and senior gold miners slumping to multi-month lows in reaction to higher U.S. interest rates. Major benchmarks rallied off multi-week basing patterns in the second half of the month, boding well for small stock buying interest into early summer.
Investopedia’s March penny stocks to watch pick Southcross Energy Partners LP (SXE) led the monthly winner’s list, gaining more than 20% in reaction to the Trump administration’s positive comments about liquefied natural gas. The stock posted a 17-month high and has been added to the May list due to the likelihood of continued gains. Spirits distributor Castle Brands, Inc. (ROK) also generated significant April upside, tagging a 2-year high ahead of a sizable reversal.
Apply aggressive risk management techniques when trading penny stocks because they can turn south at any time, regardless of broad market tone. Many of these companies are struggling with weak balance sheets, forced to dilute shares through secondary offerings or sweetheart deals that allow hedge funds to take the first profits from upside. Also, retail traders dominate low-priced stocks, encouraging predatory algorithms to seek out common stop loss levels.
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Here are the top penny stocks to watch for May 2017:
Penny Stocks To Keep Watching
1. Valhi, Inc (VHI)
Valhi, Inc. (VHI) carved a massive double top pattern between 2011 and 2014, breaking down after violating support at $10.50. A bounce into 2015 failed to mount new resistance, yielding a final selling wave that posted a 13-year low in February 2016. A steady bounce into early November gave way to a strong momentum surge, lifting the stock to a 52-week high at $4.10 in January 2017.
A February pullback to $3.00 found support, ahead of two successful tests into the second quarter. The stock surged higher in the second half of April and is now trading at a two-month high. The uptick has reached the trendline of lower highs, requiring a rally above $3.90 to avoid a bearish descending triangle that raises odds for an eventual breakdown. Conversely, a triangle breakout favors continued upside into resistance above $5.00.
2. Southcross Energy Partners LP (SXE)
Southcross Energy Partners LP (SXE) came public in the low-20s in 2012 and rallied to an all-time high at $26.49 just four months later. It then eased into a downtrend that accelerated to lower ground in 2015 when the bottom dropped out of the energy market. The stock hit an all-time low at 38-cents in February 2016 and turned higher, but failed to gain much ground into the start of 2017.
It then took off in a strong January Effect rally that’s posted three stair steps into a 17-month high. The stock reversed at resistance above $4.75 earlier this month and is now pulling back to the trendline of higher lows. A test at $4.00 should offer a low-risk buying opportunity, ahead of a continued upside that breaks resistance and heads into a stronger barrier above $6.30. That’s probably a good spot to close out long-term positions.
3. Castle Brands Inc (ROX)
Castle Brands, Inc. (ROX) plunged from an all-time high at $9.15 in 2006 to a 2009 low at 1-cent and traded below 50-cents for the next four years, ahead of a 2013 bounce that reached $2.03 in the fourth quarter of 2014. It built a double top pattern at that level into 2015 and broke horizontal support near $1.25 in January 2016, ahead of a downtrend that hit 65-cents in late December.
The stock gapped up to $1.45 in February and spent five weeks testing the boundaries of the rally bar, ahead of an April breakout that’s lifted the stock to a 2-year high. It’s now testing resistance at the 2014 high just above $2.00 and could drop as low as $1.50, ahead of a bounce that opens the door to a stronger recovery wave. Keep watch on the trendline of higher lows, exiting if a decline breaks that support level.
New Penny Stock Picks For May
4. Sequans Communications S.A. (SQNS)
Paris-based Sequans Communications S.A. (SQNS) builds chips for wireless broadband applications. It listed on the Nasdaq exchange above $8.00 in 2011 and rallied quickly to an all-time high at $19.50. Those gains evaporated in a brutal decline that dumped the stock into a floor near $1.30 in 2012. It bounced along that depressed level for more than five years, turning higher in January 2017 and embarking on an uptrend that’s now testing the 2014 high at $3.40.
Accumulation has escalated in recent months, with the stock attracting the strongest buying interest in at least five years. However, the 2014 high could mark a significant barrier, telling observant market players to wait for a breakout or pullback before getting on board. Support at or just below $3.00, generated by the February into April consolidation pattern, looks like a low-risk entry zone.
5. Pingtan Marine Enterprise Ltd (PME)
China’s Pingtan Marine Enterprise, Ltd. (PME) has traded on U.S. exchanges since 2012. This ocean fishing business supplies local and world food markets with all sorts of seafood staples and delicacies. The stock plunged from $10.10 to $1.31 in 2013 and tested that deep low in 2014 2015 and 2016, ahead of a November upturn that gathered rally momentum in January 2017.
The uptick stalled at $5.18 in March, giving way to a symmetrical triangle that’s still under construction more than seven weeks later. Rising lows are tracking 50-day EMA support at $4.25 while two breakout attempts have run into selling pressure above $5.00. This looks like a good play to get onto a watch list, with an eye toward buying the breakout or jumping in at resistance with a tight stop loss.
6. Office Depot Inc (ODP)
The U.S. Federal Trade Commission shocked market watchers in May 2016 when it denied the Office Depot, Inc. (ODP) and Staples, Inc. (SPLS) merger due to monopoly concerns. Paper and office product sales have transitioned out from brick and mortar retailers and into e-commerce portals in recent years, inducing a wave of disbelief when the misguided decision was handed down.
ODP turned higher in April 2017 when the company revealed it is exploring a sale to avoid shuttering many of its locations. Although it’s worth just a fraction of its former value, speculation could lift the stock back to range resistance above $9.00, tested in 2010 and 2015. Look for buying interest to surge when price breaks out above the December high at $5.22.
7. Delta Technology Holdings Ltd (DELT)
China’s Delta Technology Holdings, Ltd. (DELT) manufactures specialty chemicals used in a variety of applications. It traded at an all-time high at $38.25 in June 2015 and turned sharply lower, falling under a buck in the first quarter of 2016. It hovered at that depressed level into June and took off in a quick rally that stalled above $3.00, giving way to a long and painful pullback into January 2017.
It surged higher once again on January 19, doubling in price in a single session, and spent the next three months consolidating those gains. An April follow through rally just posted a 9-month high at $2.54, setting the stage for a test of the 2016 high, with a breakout opening the door to a much stronger recovery wave that could trigger a variety of weekly and monthly buying signals.
8. CytRx Corp (CYTR)
Los Angeles junior biotech CytRx, Corp. (CYTR) specializes in developing compounds for cancer treatments. It’s been listed on the national exchanges since the 1980s, topping out in 1992 at $329, after adjustment for a 2012 reverse split. The stock traded as high as the mid-40s between 2000 and 2010 but has slumped badly since that time, dumping into single digits in 2010 and remaining there for the last seven years.
It fell off a cliff in July 2016, gapping down from $2.51 to 74-cents, and spent the rest of the year hovering near the downtrend low. The stock turned higher in April, doubling in price in just four sessions, and is now consolidating those impressive gains. A rally above $1.00 should attract even broader interest that begins the long task of filling last year’s gap. Look for two-sided action within the big hole, with loose stops building more reliable profits better than tight ones.
9. Internap Corp (INAP)
Internap, Corp. (INAP) provides Internet infrastructure services from its Atlanta headquarters and data centers across North America. A 6-year uptrend fizzled out at $10.75 in April 2015, giving way to a cascading decline that reached an all-time low at 80-cents in December 2016. The stock turned higher in January 2017, embarking on an uptrend that’s posted three rally waves into March’s 52-week high at $3.86.
It’s been consolidating first quarter gains for the last five weeks and has now reached the 50-day EMA, which is sitting just 25-cents above a rising trendline. Oversold technical readings suggest this price zone will mark the low, ahead of a recovery wave that could exceed last month’s high and reach resistance at the January 2016 breakdown through the September 2015 low at $5.80.
10. Globalstar Inc (GSAT)
Louisiana’s Globalstar, Inc. (GSAT) offers satellite-based voice and data communications services. It topped out near $15 in 2007 and fell to 15-cents during the bear market. A bounce into the middle of this decade fell short, ending in 2014 at $4.53, ahead of a steep decline to 63-cents in June 2016. It tested that low in December and turned sharply higher, reaching $2.21 just a few days before year’s end
The stock has spent the last four months consolidating late 2016 gains while establishing strong support at $1.40 and the 200-day EMA. It’s now rallied within 25-cents of resistance at the prior high while accumulation continues to grow, raising odds for a breakout that reaches the 2016 high at $3.00. That uptick would mark a high percentage rally from the most recent closing price.
The Bottom Line
May’s penny stock list includes turnaround plays in technology, China, and biotech. It intentionally lacks a single junior mining play because that group looks exceptionally weak heading into the summer months.
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