Low Volume and Penny Stocks
You have probably heard the old saying, “Sell in May and go Away”. Art Cashin from UBS made it famous in the 2009 crash. As you know, many mutual funds and hedge fund managers vacation during the summer months while volume and liquidity dries up. Due to the lack of buyers, it becomes very difficult to stage sustained rallies. Short sellers typically don’t like to short dull markets. It’s not very hard for sellers to gain control. Now how does this relate to penny stocks? As we know hot penny stocks move on retail buying. Now it’s safe to say that if we are in a dull to down market.
Even your most aggressive penny stock trader is going to hold back some of his ammo. While everyone always hopes for a summer small cap rally, it doesn’t always happen. For every hot stock like MOP Environmental Solutions (OTC.PK: MOPN) that moves, there is a cult stock like Cascadia Investments (OTC.PK: CDIV) that slows down a little bit. The difference between these two names is that the volume in MOPN has surged due to an event (BP contract) and CDIV has slowed purely due to a lack of interest.
So keep in mind that in low volume markets, penny stocks will breakout less often. However world events that can create huge gains still happen. This is more prevalent in the penny stock arena. Just try not to trade just for the sake of trading. Remember to pick your spots. The potential for massive gains is still there, just less frequently. Being bored is better than losing money.
Tesla Motors and the Electric Car Company
The much anticipated Tesla Motors IPO will begin trading on Tuesday. Goldman Sachs, Morgan Stanley, JP Morgan and Deutsche Bank are the lead underwriters. The offering has also increased in size due to demand for the shares. However, Tesla is the classic concept stock and has never turned a profit. Does that matter ? Probably not.
Generally concept stocks due exceptionally well in good markets, but tend to get destroyed in bear markets. For instance the solar stocks went down faster than the broader markets in the 2009 crash due to a constant lack of earning visibility and their concept status. In Tesla’s case, the shares are oversubscribed according to some IPO services and may trade at a 1 or 2 point premium on day one. Tesla’s electric cars sell for more than 100k before tax credits which differ from state to state. They have also sold only a little more than 1000 cars. Due to the hype surrounding the deal, fundamental analysis will probably fall on deaf ears in the first week of trading.
As always we try to link some of the hotter ideas in the broader markets to penny stocks on the OTCBB. In this instance look for possible increased activity in Electric Car Company (OTCBB: ELCR) or Li-ion Motors Corp (OTCBB:LMCO). These companies specialize in electric car conversions and may see some sympathetic buying due to the interest in Tesla motors. Time and time again we have seen micro-cap stocks turn into hot penny stocks due interest coming into a larger company within the same space. You don’t need to act yet. As a matter of fact you may not need to act at all. Just be ready. Massive gains in penny stocks are a lot easier to obtain if you have the right information and are prepared.
Tesla Motors IPO
BP Stock Price and the affect of the Oil Spill
We all know that every time there is a worldwide event, investors have a chance to capitalize and make money in the markets, especially when it comes to an environmental disaster. The news bring a lot of attention to the stock market. It happened with the Exxon Valdez and Katrina. Now it’s happened again with larger companies like British Petroleum (BP), Transocean Ltd (RIG) and Halliburton (HAL) have been punished. Every time an event like this happens, several penny stocks come into play. Shares of MOPN took off after they received a purchase order from BP for their MOP Maximum Oil Pickup product.
Other penny stocks like EVTN and EVXA also received a large amount of attention from the environmental disaster. All of these companies instantly became hot penny stocks. You should throw these three companies on your penny stocks list and keep an eye on them. Many investors will try to buy familiar names that historically react favorably oil spills. Longer term investors may buy companies like MOPN and EVTN and are hoping for a home run while penny stock flippers and day traders step in and provide constant liquidity.
In the end though only a select few of these names actually benefit from these disasters financially. Only a few contracts are actually given out, so be selective. Keep in mind that profit might be short lived so be prepared to take a quick scalp. Once again the key is being prepared. You need to know which stocks move based on an event. So have your lists of blue chips, mid-caps and penny stocks ready, and be ready to pull the trigger.
IPO Calendar and Penny Stocks……Is there a Trend ?
Playing an IPO offering is just as confusing and challenging as investing in blue chips or penny stocks. Yesterday we saw Hudson Pacific Properties (NYSE:HPP) priced @ $17 and as of right now it is trading to 17.40. Now this was a deal that many people thought would be dead in the water. Prior to this offering, five REITS have done IPO’s this year. All five traded lower on the first day. Does this change the trend of IPO’s trading at a discount on the first day? Probably not. The new issue/secondary calendar tends to get a little thinner in the summer months. So developing any type of trend might be a little difficult. A lot of IPO investors are high risk high reward investors, the same type of investors as people who buy penny stocks. They both have something in common; neither likes to lose money.
So if IPO’s are not priced more favorably for retail investors and institutions, we may see even more deals cancelled or delayed in July and August. Nothing in the market is easy to predict. Nobody has a crystal ball. We are always looking at hot penny stocks and trying to predict the next winner.
Check back for more updates and free penny stock picks.
5 Reasons why we love VIZS long term and short term
1. VIZS is a minority owned business. Fortune 1000 companies MUST spend money with diverse businesses. VIZS has a great angle here. So much money is being spent that VIZS would only need to capture minuet fractions of these budgets to generate huge revenue.
2. We love gold, silver, oil etc. But this is something unique and different that we feel will
attract investors to this
penny stock. There are a thousand different
gold companies, while there are only just a few
private jet booking companies in this massive $8.5 billion dollar industry.
3. VIZS just started to trade. It is a virtually unknown company right now. VIZS was up 14% yesterday on news of just a $2 million revenue acquisition. If the company has any other news that they are waiting on releasing we could see a buying frenzy. Investors are always looking for a ground floor opportunity.
4. BUZZ: If people aren’t talking, they aren’t buying. The internet is humming with chatter about VIZS. Everyone is talking. Since the company just started trading, investors could be looking to see where the price settles and gets comfortable. If VIZS closes in the green again today lookout. The eyes that will be on VIZS could cause an EXPLOSION!!
5. VIZS is obviously looking to expand. They already announced one acquisition. If VIZS continues to buy companies that are already producing revenues and have a large client base we could see an impact. I like that they are out there buying out competition. Many companies are shying away from owning private jets after the debacle with the Auto industry execs flying to Washington in their private jets and asking Congress for a few billion like it was pocket change. VIZS can book you a flight almost anywhere with just 4 hours notice. Here is the
Vistar Press Release
Everything is looking good for VIZS on the service. Only time will tell. All I know is that I love everything I see so far.
Even if you didn’t participate in VIZS, keep your eye on it.
How Will This Effect Penny Stock Trading?
Today the Federal Reserve was once again true to their word. The benchmark interest rate remained unchanged. The FOMC also mentioned that while the U.S. economy is improving, problems in Europe could slow down growth in America.
Many large brokerage firms feel that due to the problems abroad, a rate hike here in the U.S. is unlikely until sometime next year. To me, that sounds like it makes good sense. Now, how does that affect penny stocks and companies that trade on the OTCBB.
Well, historically small cap and micro cap companies do better in low interest rate environments. This is due to the low cost of borrowing and more readily available supplies. But as you have probably read here before, hot penny stocks usually make huge moves based on a positive news release or an event related to the stock. Unlike Intel (INTC) or Disney (DIS), the big percentage gainers on the OTCBB or Pinksheets generally don’t move in sympathy with the S&P 500 or the NASDAQ 100.
Do your homework if you are looking for the next hot penny stock. You will not get a signal from Bernanke or the broader market to find the next penny stocks to watch. Low interest rates don’t hurt, but the biggest winners have come from special situations. Not from the Fed.
Check back for more blog entries and look for our next hot penny stock alert.
Penny Stock is Generally News Driven
Yesterday we saw an interesting development with the revaluation of the Yuan in China. The move seemed to have an impact as steel stocks rallied and while gold and copper stocks were weakened.
The US dollar rallied as well in response to the news. In a normal market, a rising dollar generally wreaks havoc on commodity based stocks and provides the opportunities for massive gains for traders who are short sellers.
Right now we are actually in uncharted territory. China has generally been unresponsive to world markets opinions on their management of their currency. China’s move will unquestionably have an effect on large cap commodity based issues, but does the Yuan really impact penny stocks? Could this move make a micro cap retail play more attractive than a mining company?
Generally hot penny stocks are news driven and are not as sensitive to broader market moves. For instance, Freeport Macmoran (NYSE:FCX) currently doesn’t have the strongest chart, but that doesn’t necessarily mean that we won’t see a huge gain in some unknown penny stock that is mining for copper.
We are looking for a trend to develop and for the market to adjust. Significant events like this do not happen like this every day. Uncertainty is definitely prevalent with traders right now. As events develop, strategies will change. Once event like this can shift all aspects of the market.
While penny stocks for the most part are news driven, the influx of money in and out of OTCBB companies could have a technical impact as well. We will be keeping an extremely close eye on micro caps.
Trading Penny Stocks and What You Should Know
We all know that penny stocks are a high risk investment, but they offer some of the richest rewards available on the stock market. Home runs and massive gains are achieved each and every day in the small cap stock arena. You must preserve capital and at some point be willing to cut your losses.
SHORT TERM TRADING
Each and every day, there are several hot penny stocks in play. However, sometimes less is more. First and foremost limit your number of positions to a maximum of three stocks. It’s hard enough to pay attention to one stock, nevertheless five or six.
MARKET MECHANICS
Investors also need to understand the way the market works. You must understand the difference between the bid and ask. This is especially important with penny stocks. The person who is bidding for the stock is willing to buy the equity at that specific price. The scenario is flipped in regards to the ask price. The person who is offering the stock for sale is willing to sell the equity at that exact price.
LIMIT ORDERS
Human nature sometimes takes advantage of us and we can get real greedy. When a penny stock is moving, our greed tells us to act quickly. More often than not, when you place a market order on a hot penny stock your execution price is much higher than you initially expected. This is why it’s better to stay disciplined and miss a potential massive gain than expose yourself to a bad fill and a potential disaster. Another common mistake made while investing in penny stock investors is putting your money with illiquid stocks. Owning a stock that doesn’t trade much before everybody catches on is great when it goes up, but there could be hell to pay if you are wrong. Having no buyers ready to buy your illiquid position can wipe out hard earned gains from other positions. So try to stick to stocks that trade at least 100k in dollar volume per day.
SCALING OUT
When investing in penny stocks you should have an exit strategy. Actually, it doesn’t matter if it’s a blue chip or a penny stock. You should always have an exit strategy on any investment. You need to know how and when to get. You should set a threshold for how much money you are willing to lose, whether it is 5 or 10%. If your pre-determined loss threshold is hit, you should chalk it up as a loss and move on. Another good penny stock idea will come along sooner than you think. Most experienced traders never let their whole position go at once. Scaling out of positions in thirds is a common trading strategy. Scaling out may cost more in commissions, but paying a little more is worth it when implementing a sound strategy.
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AMLM- American Lithium Minerals Inc (OTC:AMLM)
We found this hidden penny stock gem back in early September around .90 (ironically that is where it is sitting right now) and by late October we were sitting up at 2.90. ENORMOUS GAINS!!!!
Put AMLM back on your radar immediately. We have obviously been watching this company ever since we profiled it. We feel that AMLM is getting ready to rock.
Lithium has been hogging the headlines recently, even with gold making new highs.
Take a look here at this Wall Street Journal post
The estimates in this press release are off. They are now saying that there could possibly be up to $3 trillion worth of lithium. That is great news. They are inviting companies to come help mine the lithium and extract it from the ground. I have read reports that say Afghanistan could be 10 years away from mining any lithium.
This will be great in 10 years, but lithium is needed NOW and AMLM is sitting on what is being called the 2nd largest lithium deposit in the world. Lithium powers batteries for lap tops, cell phones, Ipod, Ipads, automobiles etc.
AMLM operates here within U.S. borders, where the laws are black and white. You don’t have to worry about dealing with foreign governments such as Afghanistan, Chile or Bolivia. AMLM’s claims are sitting in Nevada.
As we stated before when we profiled AMLM back in September, President Obama has made a promise to have 1 million American-made hybrid vehicles on the road by 2015. Most importantly, he’s backing it with money. The Advanced Technology Vehicle Manufacturing program for battery development has been awarded $25 Billion, and this massive funding has ignited lithium projects left and right.
The industry currently can’t produce enough lithium to build the hundreds of millions of large-format batteries needed to power electric cars, and plug-in hybrids of the future. This is why the demand for lithium is continually increasing, and is projected to grow by 20% per year over the next decade!
AMLM also recently received a $4 Million dollar investment in their Borat Hills project (another region expected to be rich in Lithium) by Japan Oil, Gas and Metals National Corporation.
The company will be a strategic partner in the Borat Hills Project; projected to yield a very large deposit of relatively high grades of lithium and boron (the region already contains the second largest boron deposit found in the United States).
We will have more on AMLM, but you should start doing your research immediately.
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Volume and Liquidity
Penny stocks can will often gain or decrease in value with even the slightest provocation. This can happen with no news or even a limited trading history in the stock. Even if you see a penny stock up 200% in a day, it does not mean that it’s a hot penny stock.
Lets say that there is an investor who loves gold penny stocks. He loves the gold market and thinks that a gold company is a good place to park his assets rather than buying the hard commodity. He wants the most bang for his buck, so rather than invest his $10,000 in Newmont Mining (NEM) he looks for a cheap penny stock.
The uneducated investor puts in a market order for said penny stock. The penny stock he chose was extremely illiquid and hasn’t traded a share in weeks. This could result in a 100% leap in the price of the stock because of the buying pressure. Now the market cap on this stock just doubled on a $10,000 investment. The market cap is now twice that of what it was 30 seconds before the trade. Is this justified?? No. This could be a false catalyst to peak the interest of an uneducated investor who is using a stock screener that alerts them to increases in price on penny stocks. This stock will eventually drift back down as there is no more buying in the stock.
A major part of the process while investing in a penny stock is to understand what driving factors are taken into consideration in the price of penny stock shares. If a penny stock jumps high on very little volume, chances are something like I just mentioned happened.
This is why you must put together a list of penny stocks and take your time to do research on each individual company.
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