Top Penny Stocks Watchlist: Four Technical Patterns to Watch for a Breakout

Major stock indexes rocketed last week — the S&P 500, for instance, gained 3.1% in the last five trading days following economic fundamentals that are finally aligned with investor expectations. Expectations are something that we talked about in detail to lead last week's Watchlist. After all, the difference between what investors and analysts expect and the real-world numbers is typically the number-one driver of stock movements.

That's been especially true in 2010 as numbers missed expected targets for most of the year. But with indexes finally creeping into positive territory this week, the potential for  a fundamentals-fuelled rally is once again real. And that means a whole lot more for small-cap investors.

That's because investing in the right small-cap stocks can significantly multiply your gain potential. Last week, while the S&P gained its paltry 3.1%, our watchlist picks jumped an average of 10.16% — that's serious movement for only five trading days. That's like making 528% annually on your portfolio — or, when compounded, enough to turn $1,000 into $142,043 in a single year.

With that in mind, let's move on to this week's watchlist.

In case you're not familiar, each week, The Penny Sleuth takes 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 best stock to buy 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 breakout penny stocks worth watching...

LMI Aerospace (NASDAQ: LMIA) — Small-cap aerospace company LMI Aerospace provides design engineering and structural assembly services to the defense and aerospace technology markets. Since October shares have been forming a bullish ascending triangle pattern, which suggests share could move significantly higher on a break above the $14 level. Don't consider making a move until then…

Bank of Kentucky Financial Corp (NASDAQ: BKYF) — Small regional banking stock Bank of Kentucky Financial Corporation broke out above its 50-day moving average last week, a move that clears the stock to higher ground in the short-term. With a strong resistance level at $22 right now, a break above that price could make for a double-digit gain in March.

Suffolk Bancorp (NASDAQ: SUBK) — Suffolk Bancorp is another small banking play that hit my radar in this morning's pre-market. The stock broke above a significant resistance level at $30.50 in Friday's trading, and is confirming that level already this morning. As long as we see a close above $30.50 today, we could be in store for a big upside play later this week.

W&T Offshore (NYSE: WTI) — Our sole short side play this week is W&T Offshore, an independent natural gas exploration company. Shares have formed the dreaded head-and-shoulders pattern in the past few months, signaling to investors that selling time could be coming up. A break below shoulder level is our trade trigger on this play.

Share Your Penny Stock Picks…

Once again, we're going interactive this week...

Just visit the Penny Sleuth website, and post your best penny stock pick in the comments section of this week's Watchlist by Friday, March 12.