The presidential election intensified buying interest in low-priced stocks, such as penny stocks, triggering a strong U.S. Dollar rally that favors domestic equities over multinationals. The Russell-2000 responded with its strongest uptick in three years, lifting the small-cap index to a bull market and all-time high. This surge in speculative fervor should underpin this popular market niche well into 2017.
Penny stocks (stocks trading for less than $5.00) are also benefiting from positive seasonality, with small caps traditionally booking their strongest gains between November and the following March. The Santa Rally accounts for the first part of this well-documented phenomenon while the January Effect generates the second, favoring speculative purchases in the most beaten down issues when end of year tax selling pressure ends.
Northern Dynasty Minerals Ltd. (NAK)
Vancouver, B.C. miner Northern Dynasty Minerals Ltd. focuses on exploration and development of U.S. properties, with a special focus on Alaska’s Pebble Project. It broke out above four-year resistance in 2011 and traded quickly to an all-time high at $21.76. The subsequent pullback intensified in 2012, dumping price within 50-cents of the 2008 bear market low at $1.75. A bounce into 2013 failed, yielding a breakdown that posted a series of new lows in the first quarter of 2016.
The stock then turned sharply higher, clearing two-year resistance at 60-cents in August and gaining additional ground in a momentum-fueled buying impulse that’s now lifted well above $1.00. The rally just reversed after filling the February 2014 gap between $1.50 and $1.00 (red lines), setting up a buying opportunity when it pulls back to test new support centered near 90-cents.
Gerdau SA ADS (GGB)
Brazilian steelmaker Gerdau SA ADS is benefiting from higher iron ore prices after that commodity hit an 8-year low. In addition, President-elect Trump’s stated commitment to infrastructure development is underpinning worldwide steel pricing, with many components pushing against multiyear highs. These steel and iron cycles tend to be long-lasting, suggesting the sector will now head into a secular bull market.
The stock’s long uptrend peaked in the mid-20s in 2008, yielding a steep decline to $4.18 during the economic collapse, followed by a lower high in the upper teens. It then entered a multiyear decline, breaking double top support in 2014 before bottoming out at 81-cents earlier this year. The subsequent bounce has now reached resistance at the broken top, with a breakout above $5.00 opening the door to a large-scale recovery into double digits.
Novabay Pharmaceuticals Inc. (NBY)
Novabay Pharmaceuticals Inc. develops and markets eye care and dermatology products. The company regained compliance with the NYSE at the end of October after completing refinancing arrangements. It came public in the low 90s in 2007, after adjustment for a 2015 one for 25 reverse stock split, and entered an immediate downtrend that found support at $45.
The subsequent recovery wave stalled well below the prior high, yielding a steady decline that broke 2008 support in 2015, dropping the stock to an all-time low at 1.50. It’s been on the recovery trail since bottoming out in December 2015, lifting in a stair step rally that reached resistance at the 200-day EMA in August. The stock has ground out a bullish ascending triangle pattern since that time, with a breakout raising odds for a strong advance into double digits.
Approach Resources Inc. (AREX)
Approach Resources Inc. explores and develops Permian Basin oil and gas properties. It topped out earlier this decade with the energy sector and entered a decline that accelerated in 2015, dropping the stock to an all-time low of 60-cents in the first quarter of 2016. The subsequent bounce has unfolded in three buying waves that reached resistance at the 2014 breakdown and .386 Fibonacci selloff retracement level at $4.25 in September.
Price action since that time has been constructive, with a narrow basing pattern on top of the 50- and 200-day EMAs. Beneficial relative strength cycles are now lining up, raising odds the stock will challenge the September high and break out. That buying impulse would open the door to a rally between $6.00 and $7.75, offering large percentage gains from the currently traded level.
Nova Lifestyle Inc. (NVFY)
Nova Lifestyle Inc. manufactures and sells residential furniture in the United States. It recently divested Chinese operations, triggering the departure of CEO Ya Ming Wong. The stock came public near 2.00 in January 2013 and traded to an all-time high at 10.35 one year later. The subsequent downtrend undercut the IPO opening print in 2015, with selling pressure continuing into a series of all-time lows that reached 38-cents in June 2016.
The stock turned sharply higher in July, carving a momentum fueled advance that stalled just above 5.00 ahead of the China sales agreement. Price action since that time has carved a steady pullback that’s now approaching major support at the alignment of the .618 rally retracement and 200-day EMA near 2.00. That level could offer a low-risk entry, ahead of a bounce that has the potential to double the stock’s price into 2017.
The Bottom Line
Penny stocks have now entered a seasonality positive period while the Trump election has lifted the U.S. Dollar, favoring small caps at the expense of blue chips and multinationals. These five penny stocks should benefit from this positive confluence and continue strong recoveries off deep lows posted in the last year.
{loadposition user99}