Short-Term Limits For 8 Small Cap Movers

by: Brian Nichols

During this article I will be looking at 8 of last week's most active small cap stocks. These stocks have each posted continuous gains that have outperformed the market during the last 5 trading days. I believe there is a chance that each of these stocks could post additional gains and I expect the market to re-test 52 week highs during the month of December. Yet these stocks have already posted such large gains, which means that technicals will be important, and we must identify how investors perceive each stocks current position based on previous performance. Therefore I have developed short-term limits (high price over the next two weeks) that's based on my belief that the market will trend higher during December along with a review of each stocks previous performance, and resistance, to better determine whether or not each stock will trend higher or begin to fall.

Before we look at eight small-cap movers of last week let’s review why I believe the market will continue to trend higher. First, the most significant reason is we are seeing progress out of Europe along with several nations coming together to aid in the euro zone’s financial crisis. This issue has overshadowed encouraging data from the U.S. over the last four months. We’ve watched as most of the large companies within the market have posted great earnings only to fall when discouraging news would rise from Europe. Therefore it’s great news that Europe is making progress and it will allow the U.S. markets to trade on its fundamental progress. I believe that if Europe can stay quiet or deliver encouraging news then the markets will trend higher and because of record sales to start the holiday season; strong auto sales; additional private sector jobs; productivity rising to 2.3%; and unemployment dropping to 8.6% I believe the gains in December could be substantial. Yet the perception will be very important in determining trends of individual stocks during this month. The Dow Jones is currently trading at 12,166 points and has gained 8.4% last week. And although this seems encouraging investors have seen pops over the last four months only to fall by drastic margins with one negative statement out of Europe. Therefore investors will be on guard and I believe are prepared to protect their gains by selling at any sign of trouble. Investors are watching the levels of various stocks as well, and are comparing previous resistance to current prices to better predict short-term gains. This action is what I’m preparing throughout this article – I am showing levels of resistance along with current prices to better determine upside potential in this volatile market.

Chart forXPO Logistics, Inc. (NYSEMKT:<a href='' title='XPO Logistics, Inc'>XPO</a>)

XPO Logistics (XPO) is a non asset based transportation company that's posted a gain of 22% during the last 5 days. The company has a market cap of $91.87 million and is currently trading at $11.11 and according to the chart still has upside potential. The only other series of gains during the last four months occurred during October when the market was trending higher. During this time the stock increased from $7 to $12.66 in approximately 20 trading days. What I find to be interesting with this stock is that volume has declined each of the last four days while the stock's risen from $9.50 to $10.59. Monday was the first day the stock traded with higher volume, and was its largest single day gain of the last five trading days. I believe that volume will continue to increase and I believe the stock will test $13, for an 18% gain in the coming week. The stock reached $12.66 on October 31 but then fell after accounting charges affected the bottom line of earnings along with strong selling within the market. I expect $13 to be reached as a short-term target in the month of December which appears to be its next level of significant resistance.

Chart forSpectrum Pharmaceuticals, Inc. (NASDAQ:<a href='' title='Spectrum Pharmaceuticals, Inc.'>SPPI</a>)

Spectrum Pharmaceuticals (SPPI) is not exactly what I would call a small-cap stock with its $845 million valuation however it's under $1 billion therefore I will put it on the list. I believe its trend is worth mentioning as I am confident that this will be one of the best performing stocks of December and of the next year. And although this is a technical article and I'm not discussing fundamentals I urge you to research this company because its growth is mindboggling and its valuation is very low. The stock is now trading in new territory after news that the company's filed an IND application with the FDA for its lead candidate along with continued success from its two already FDA approved drugs. The stock has gained 16% over the last 5 days and 81% during the last month as investors prepare for strong earnings growth within the company. The stock posted a gain of 5.56% on volume of 1.71 million shares traded on Monday, which is surprisingly low compared to other days of similar gains. I believe the reason is because of low selling volume as most who are buying the stock are holding the stock and not trading. I believe this stock has a substantial amount of upside potential, yet since it's trading in new territory it's difficult to identify resistance. It's been more than 10 years since SPPI traded with such a steep uptrend and because of its consistency and steady pace to new gains I believe it will trend higher, possibly to $20 before investors consider the stock overbought. A trend such as this is a true luxury because there is nothing to compare it with, which could limit selling pressure among investors.

Chart forVical Inc. (NASDAQ:<a href='' title='Vical Incorporated'>VICL</a>)

Vical Incorporated (VICL) is a biotechnology company that posted a five day gain of nearly 19%. As you can see, the last time this stock was trading at these levels was in late July before the market began to sell off. The stock almost immediately reversed in October once it bottomed out and has been on a steady uptrend ever since. The stock is just $0.70 from its 52 week high and trades with a significant amount of investor optimism. I believe VICL will trade lower in the coming week, perhaps by 10% as investors take profits. However, I believe it will then post gains and create new highs by the end of December. The stock had been trading higher until strong selling in late July, and I believe it will once again continue its trend during the next month. But I feel that because of its 34% gains over the last 7 trading days with increased volume that there will be some profit taking in the immediate future but that it will be short lived.

Chart forAchillion Pharmaceuticals, Inc. (NASDAQ:<a href='' title='Achillion Pharmaceuticals, Inc.'>ACHN</a>)

Achillion Pharmaceuticals (ACHN) has posted a gain of 24% during the last five trading days. The biotechnology company's volume has increased during this time period by a significant margin and has now exceeded its $6.50 resistance. Since August 15 the stock has traded over $6 on eight occasions but always fell after exceeding this price. The stock's strongest resistance since August 15 has been $6.50 with it being reached on two occasion but always falling after reaching the price. The stock now trades at $6.96 and is now in a new trading range. The stock's next level of resistance is $7.40 which it traded around before the market sell-off in late July. I believe the stock will reach this price and possibly $7.50 in the coming weeks for a gain of 7-8%.

Chart forOCZ Technology Group, Inc. (NASDAQ:<a href='' title='OCZ Technology Group Inc'>OCZ</a>)

OCZ Technology Group (OCZ) has posted a five day gain of 36.5% after raising Q3 and 2012 full year revenue guidance. The stock's now trading at $7.74 but has several levels of resistance. Over the last year there have been various points of resistance that the stock's been reluctant to surpass: $8, $8.50, and $9 have each shown resistance at various points during the last year. However, each point has been easily surpassed at different times and from what I've seen the only time the stock trends lower is when the market trades lower. Therefore I see no significant resistance in the near future, and if the market can maintain its direction or even trade flat I believe the stock could easily surpass $9 in December for a gain of 17%, and could potentially trade even higher.

Chart forRoyale Energy Inc. (NASDAQ:<a href='' title='Royale Energy, Inc.'>ROYL</a>)

I believe that Royale Energy (ROYL) will post large gains in the next few years but that its immediate gains could be limited. The stock's posted a 5 day gain of 20%, and a ten day gain of 47%. The stock's gains have been a result of new found areas of natural gas and a large supply of natural gas that will be sold in the near future. And although its current sequence of gains seem consistent I believe that it will pullback at some point in the coming week. However, I am bullish on ROYL and if I were investing in the company I would just watch the stock during the next five days. And if the stock trades above $5.25 then it will be in another level and I would buy the stock but if it falls below $3.50 I would also buy the stock which is its resistance towards the bottom. Either way I believe this stock is a buy and that these two points will provide the most likely opportunity for immediate gains.

Chart forMajesco Entertainment Co. (NASDAQ:<a href='' title='PolarityTE, Inc.'>COOL</a>)

Majestic Entertainment Company (COOL) is trading with a slight pullback but has still posted a 5 day gain of 10%. And although this stock hasn't returned the same level of gains as the others on the list I believe its trend is the easiest to identify. I have been trading COOL for the last 8 months and have returned very large gains by staying true to a pattern. The stock shows substantial resistance at two points: $2.50 and $3.50. The stock rarely drops below $2.50 and rarely rises above $3.50, but when it does it almost immediately returns to trade between the two prices. And since March the stock has stayed true to this trend with occasional pops and drops above and below the resistance. The stock is currently trading at $3.03 which is in the middle of the trend. I believe the best way to play the stock is to be patient and wait for it to drop to $2.60 or if it were by some chance to rise above $3.75 then I would suggest buying the stock. I believe this trend will repeat itself on two more occasions but will then trade higher and not repeat this trend in the future. The company's gearing up for the sequel to its Zumba video game with Zumba 2, which is a best seller and will most definitely post high sales. In addition the company's making a presence on Facebook and is releasing the sequel to Parking Wars, the popular Facebook game. And since video game giant Zynga is preparing to trade with a valuation over $8 billion from its success on the Facebook platform I believe the Parking Wars game could be more beneficial to the company then what investors realize.

Chart forAcura Pharmaceuticals Inc. (NASDAQ:<a href='' title='Acura Pharmaceuticals, Inc.'>ACUR</a>)

Acura Pharmaceuticals (ACUR) has posted a 5 day gain of 25% yet is still trading with a one month loss of 12%. The stock is trading at $3.75 which is near its first level of resistance, $4, which is fairly strong. The stock's had problems trading above $4 in the past, however if it can surpass this level its next level of resistance isn't until $4.80, which would be a gain of 28% from its current price. I believe the stock will surpass the $4 resistance by the end of this week and that it will then trend higher throughout next week. One reason is because of its low volume -- this stock has traded with significantly lower volume than in June and July -- when it was previously trading at this level. I find this to be encouraging and believe it could indicate less volatility in the immediate future but that heavy buying could occur if the stock surpasses $4.50, which occurred in October. The stock trended higher with little volume in October and then posted huge gains with heavy volume after surpassing $4.50. The only reason the stock fell was because of selling pressure within the market. I expect December to result in gains and I believe this stock has the potential to trade above its $5.25 high in October, which would be a 40% return for investors that take advantage of its current position.

Disclosure: I am long ACUR, XPO, COOL.