Small cap and low-priced stocks shot higher in May, with investors seeking exposure in domestic opportunities to avoid growing headwinds from U.S. trade disputes with China, Europe, Mexico, and Canada. The Russell-2000 small-cap index rallied to an all-time high in a broad speculative bid, but low-priced junior miners failed to participate, held down by falling gold and silver prices.
Positive seasonality for small caps and penny stocks has ended. However, the U.S. dollar just rallied to a 6-month high. The higher dollar may keep the pressure on multinational companies while underpinning buying interest in domestic securities. In turn, this could generate a continued flow of speculative capital into penny stocks through the summer months.
The WTI crude oil contract lifted above $70 for the first time since 2014, triggering strong rallies in May’s energy picks. Legacy Reserves LP (LGCY) soared nearly 84% in the first two weeks of the month, posting a 3-year high, while solar manufacturer Enphase Energy, Inc. (ENPH) broke out of a 2-month basing pattern and gained 40%. While as of the time of writing, oil prices have fallen slightly from that historic high, ENPH has returned on June’s list, along with two other energy plays that could benefit from the sector’s bull market.
Penny Stocks to Keep Watching
1. Enphase Energy, Inc. (ENPH)
Enphase Energy, Inc. (ENPH) posted an-all time high at $17.97 in September 2014 and broke down in May 2015, entering a brutal decline that ended at an all-time low at 65-cents in the second quarter of 2017. A sturdy bounce into November lost momentum above the 200-day EMA, giving way to a basing pattern, followed by impressive upside that reached a 2-year high in May 2018. A pullback to $5.00 could now offer a low-risk buying opportunity, ahead of a long-term target near 2015 resistance at $10.00.
2. Stein Mart, Inc. (SMRT)
Stein Mart, Inc. (SMRT) tested the 2009 high in the mid-teens between 2013 and 2015, finally breaking down in a vertical decline that undercut the bear market low in February 2018. The stock mounted that level in March, setting off a failed buying signal that triggered a one-day buying spike to $2.45. It broke out above the range posted by that price bar in early May, lifting to the highest high since January 2017, and has been consolidating gains for the last two weeks. Steady buying interest favors continued upside that could reach resistance at $6.00.
3. HTG Molecular Diagnostics, Inc. (HTGM)
HTG Molecular Diagnostics, Inc. (HTGM) topped out at $19.75 in June 2015 and sold off in a persistent decline that posted an all-time low at $1.20 in February 2017. It then lifted more than 13-points and rolled over, giving up the majority of gains into year’s end. The stock turned higher once again January 2018, rallied to $5.83 in March and pulled back to the 200-day EMA at $3.30. It’s been basing at that deep support level for the last two months and could now lift back above $5.00.
4. Luna Innovations, Inc. (LUNA)
Luna Innovations, Inc. (LUNA) fell from $10.45 in 2007 to under 30-cents in 2009 while a vertical bounce into 2010 ended at $5.00. Multiple attempts to mount that persistent barrier have failed in recent years while pullbacks have carved a rounded basing pattern with support at $2.20. The stock surged to an 8-year high at $4.00 in April 2018 and pulled back in a shallow retracement that found support at the 50-day EMA. This bullish action sets the stage for a test at 2010 resistance, with a breakout bringing the all-time high into play.
5. Bellerophon Therapeutics, Inc. (BLPH)
Bellerophon Therapeutics, Inc. (BLPH) topped out at $12.92 on the day after an initial public offering opened at $9.25. The subsequent decline continued into December 2016, dropping the stock to an all-time low at 43-cents. It surged off the low in two rally waves, stalling in December 2017 at $2.74 and dropping into a rounded consolidation that’s carved support just below $2.00. Price action has hovered at the March swing high for the last two months, with strong buying interest raising odds for an intermediate breakout and test of the 2017 high.
New Penny Stock Picks for June
6. Enservco, Corp. (ENSV)
Denver oil and gas explorer Enservco, Corp. (ENSV) posted an all-time high at $4.02 in September 2014 and rolled over in a major downtrend that found support at 27-cents in the first quarter of 2016. A bounce into mid-year stalled at 89-cents, giving way to a pullback that broke the prior low in April. The stock hit an all-time low at 21-cents a few weeks later and turned higher in a recovery wave that reached $1.20 in January 2018. The subsequent pullback attracted steady buying interest, triggering a May breakout that could reach the 2015 high at $2.44.
7. Genesis HealthCare, Inc. (GEN)
Genesis HealthCare, Inc. (GEN) posted an all-time high at $16.57 in May 2007, just after coming public at $16.00, and sold off to $1.43 during the 2008 economic collapse. It tested that level in June 2016, bounced to $4.75 and rolled over, breaking down to an all-time low at 60-cents in December 2017. A steady uptick into 2018 reached broken support in February while a 3-month ascending triangle breakout has now issued a buying signal that could lift the stock back to the 2017 high. That rally could translate into a price double from current levels.
8. Aptose Biosciences, Inc. (APTO)
Aptose Biosciences, Inc. (APTO) posted an all-time high at $7.78 in October 2014 and drifted lower, finding support at $4.01 in February 2015. It posted lower highs into November and broke down in a high volume decline that reached an all-time low at 78-cents in May 2017. The stock broke out of a yearlong basing pattern in November, entering an uptrend that reached 2016 resistance at $4.30 in January 2018. It’s carved a 4-month ascending triangle pattern at this level, raising odds for a breakout that could fill the November 2015 gap between $4.33 and $5.31.
9. Sandridge Mississippian Trust II (SDR)
Sandridge Mississippian Trust II (SDR) collects royalties for oil and gas properties in Mississippi, Kansas, and Oklahoma. It came public at $21.80 in April 2012 and topped out at $23.91 a few weeks later. The subsequent decline continued into December 2017, hitting an all-time low at 74-cents. The stock bounced off that level into February 2018 and stalled at $1.10, finally clearing resistance in early May. It’s now posted a vertical rally into 2017 resistance at $1.79, raising odds for a pullback that offers low-risk buying opportunity $1.25 and $1.40.
10. Galectin Therapeutics, Inc. (GALT)
Galectin Therapeutics, Inc. (GALT) posted an all-time high at $19.11 in February 2014 and entered a steep downtrend 6-months later, losing ground into 2016’s all-time low at 49-cents. A recovery wave into 2017 stalled at $3.68 while a January 2018 breakout reached a 3-year high at $6.74. The stock has been pulling back in a bull flag pattern since that time, finding support at the 200-day EMA. It’s rallied to flag resistance in recent weeks and could now break out, targeting the July 2014 unfilled gap between $8 and $14.
The Bottom Line
Energy and biotech stocks dominate June’s penny stock watch list, with both groups showing impressive relative strength compared to other sectors.
<Disclosure: the author held no positions in the securities mentioned above at the time of publication.>