Cheap Stocks: These Aren't Necessarily a Lucky 7

 | Jul 13, 2016 | 12:08 PM EDT
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I took a look at the stocks highlighted in the story "7 Stocks Under $10 That Could Make You a Lot of Money." Using my favorite indicators and charts, I found I could cut the list down to the ones I think have a better chance to rally. 

Before we dive into the charts, I want to mention that really successful investors focus on defense and risk first and try not to focus on "making a lot of money." 

In this daily chart of Baytex Energy (BTE) , above, we can see prices are above the rising 50-day simple moving average line and over the flat 200-day average. The On-Balance-Volume (OBV) line has moved up from February, signaling aggressive buying, but the line has been flat in recent weeks. There are no bullish divergences from the momentum study to point to higher prices ahead. 

In this three-year chart of BTE, above, we can see the big decline followed by the sideways price action. Prices are above the 40-week moving average line. The OBV line on a weekly time frame is up the past few months. The Moving Average Convergence Divergence (MACD) oscillator is back to the zero line. Drawing on my experiences with stocks that have had significant declines, I would look for a much bigger base to develop on BTE. A pullback to $4 or a tad lower would not surprise me at this point. 

This daily chart of Encana (ECA) , above, shows a January/February low. Prices made a big percentage rally from this early 2016 low and have cooled off a bit. ECA is testing its 50-day moving average line but still above the flat 200-day average. The OBV line turned up in February, signaling more aggressive buying, but it has been neutral the past two months. The rate of change of prices during the advance has slowed, giving us a bearish divergence. Prices made higher highs in March, April and June but the momentum study made lower highs. The slower pace of the advance tells us selling has picked up as prices have rallied. 

In this weekly chart of ECA, above, we can see prices have rallied above the 40-week moving average line. There is a very strong response from the weekly OBV line, suggesting some aggressive accumulation of Encana. The MACD oscillator is above the zero line for an outright buy signal. Prices could see a $7 to $9 trading range for ECA for a while, but it looks like we could see an eventual rally to the $12-$13 area as our next long-term price target. 

We do not have a lot of price history to work with on CPI Card Group (PMTS) , above, but it doesn't matter -- I find nothing technically attractive about the long side of PMTS. The huge gap to the downside in May should tell you there was a big, important shift with supply and demand. The OBV line has been pointed down (bearish) the entire time, and despite the recent price improvement, it is still telling us that sellers are more aggressive. PMTS is not on my buy list! 

This daily chart of Marinus Pharmaceuticals (MRNS) , above, shows another unattractive name. There has been a big decline before the gap down in June. Not enough time to form a base or do a proper retest of the low. Prices are below the 50-day and 200-day averages. The OBV line hasn't done enough "work" to convince me that buyers are really stepping in. I think there are more attractive low-priced names out there. 

I selected a log chart for this presentation of EnteroMedics (ETRM) , above, to show I have no desire to buy a falling knife. Prices are still pointed down, the moving averages are pointed down, the OBV line is pointed down. I am only interested in stocks that are pointed up, thank you. 

This chart of Chesapeake Energy (CHK) , above, is mixed. Prices are below the 50-day and 200-day averages, but it wouldn't take all that much of an advance to close above these two lines. The OBV line turned up from February through April but has been flat since. If CHK was getting ready to move higher soon, I would expect the OBV line to lead the way. 

In this weekly chart of CHK, above, we do not find any positive longer-term clues to give a more positive outlook. Prices are below the declining 40-week moving average line. The OBV line does not seem to be making a sustained rally and the MACD oscillator is below the zero line. More of a base formation is going to be needed before CHK is ready for an advance. 

I don't think I need to spell it out when you look at these two charts of Ampio Pharmaceuticals AMPE, above. 

Bears are still very much in control of the price action. These charts just say one word to me -- risky.

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