Monday Penny Stock Watchlist: Taking Advantage of January Gains

By @ibtimes on

2009 is finally behind us, and the New Year's in full force - as evidenced by the solid rally that stocks are starting today. Here at the Penny Sleuth, we closed the year out strong with another shot at double-digit gains in just three trading days last week.

All told, December was one of our best months yet for our Penny Stock Watchlists - playing our best stocks each week would have turned $1,000 into $11,993.59 in just four weeks. And on average, our watchlists (in total) have returned solid gains since our first one back in mid-October.

January is typically a big month for investors, and 2010 looks no different. Historically, stocks rally during the first month of the year, and this year's starting off right with all major indexes up as of trading's commencement this morning. As usual, with most stocks acting similarly right now, it's tough to know which stocks to focus on for the week.

That's where our weekly Penny Stock Watchlist comes in...

Each week, we take a look at a list of penny stocks that are exhibiting abnormal volume, strong technicals, upcoming news, or another catalyst that suggested they might be making a material move in the coming week.

As usual, while our Watchlist errs on the safe side of small-caps, using technical analysis to tell us where a stock is headed, we opened the comments up to readers again this week, giving you the chance to offer up more speculative penny stock plays.

Check out the comments after this article on the Penny Sleuth website to get a glimpse at a slew of new user-submitter penny stock picks - and the chance to submit your own!

First, though, let's take a look at this week's penny stocks worth watching...

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Magal Security Systems Ltd (NASDAQ: MAGS) - This $41 million Israeli-based computer security stock could be on the verge of a strong week following a breakout above the 50-day moving average in New Year's Eve's trading session. That breakout sends a technical signal that the stock is headed higher... potentially up to the next resistance level around $4.25 per share. That's a 15% upside potential that we're going to bet on starting today.

BioForm Medical (NASDAQ: BFRM) - Medical aesthetics company BioForm Medical is up nearly 61% today following a buyout announcement from German-based Merz Pharma Group. While this stock popped onto quite a few investors' radars this morning on its price jump, with shares currently hovering right around the offer price of $5.45, there's not a trade to be made here. Stay away from this one unless it drops well below the offer.

Black Dragon Resource Companies (PINK: BDGR) - Black Dragon Resources is an oil and natural gas developer based in aptly-named Oil City, Louisiana. Black Dragon's business is fairly typical of the industry, but its chart isn't. Shares have rallied hard in the past few trading sessions, possibly the result of some ruthless penny stock promotion. If you want to ride the rally, place tight stops (10% or so): pink sheets companies are volatile, and heavily promoted ones are even more so.

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General Steel Holdings (NYSE: GSI) - Strong performance today could keep this potential trade from triggering, but watch it close this week, a sustained breakdown below the 50 and 200 day moving averages tells traders to short this stock - particularly after shares failed to keep enough momentum to reach a triple-top at $6.00 per share.

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