Yesterday I noted some action in the biofuels area as shares of Verenium Corporation (VRNM) popped on heavy short interest. I was just looking over my quote screen and see that Pacific Ethanol Inc (PEIX) is now active.

Much like Verenium, Pacific Ethanol is a volatile, low-priced equity that once traded at higher levels. In fact, this $2 stock once traded above $40. Shares of PEIX are also heavily shorted too. According to data collected by our Quantified Analysis group, 22% of the stock's float is now sold short.

As discussed yesterday, I usually don't focus on low priced stocks but I think this situation deserves an exception for two reasons. The first is what was alluded to above - both of these stocks used to trade at much higher levels. The second is that there seems to be some increasing interest in the group. Yesterday we saw a large pop in Verenium and today we see a rally (an admittedly smaller one though) in Pacific Ethanol. It is still too early to call this a trend, but I think this is worth monitoring as increasing interest in the group as a whole could suggest buyers starting to come back to the equation.

Just as was the case with VRNM, I think there are two ways to approach PEIX. One is a short-term tactic of trying to ride the short-term momentum. The other is a longer-term approach that involves waiting for confirmation of a turnaround. If there is a going to be a turnaround, the first thing to look for would be signs that the stock can hold a rally. The shares have shown the ability to show quick pops but the gains have usually been reversed quickly. A rally followed by a sideways consolidation (instead of a pullback) would be something to note.

Chart Courtesy of Thomson Financial