Buying Penny Stocks: What to Look For

I’ve been doing some homework to show my readers (if any—LOL) some real-life examples of what to look for when you buy penny stocks. This requires the help of some trading tools that I have with my Ameritrade account; namely the Screener. If you know how to use it, a stock screener can be your best friend. I personally steer clear of all fundamental data when I’m screening stocks, and I sort exclusively by price. I don’t care if the company sells widgets, toilet paper, nanotechnology, drugs, or used squirrel legs (don’t ask)…the chart will tell you everything you need to know. Price action is absolutely king, and there is no substitute for price action as far as determining whether or not to buy a particular penny stock. I love AMEX stocks probably the best, because they’re much more stable than their OTCBB counterparts, although the OTCBB stocks are pretty thrilling to trade. You have to have an “iron stomach” to trade the OTCBB stocks, though, because they’re so ridiculously volatile, and oftentimes their price moves simply don’t make “sense”, especially in the estimation of fundamental analysis. Meanwhile, the insiders are getting over by the truckload, because they truly understand that the markets are just a big casino, with the “house” always having the edge. Although I use the analogy of a casino many times when I talk about the markets, I do NOT mean that you should treat trading like you would treat gambling. The markets are no place for uninformed, money-hungry participants who have a “jackpot” mentality…you will get your goose cooked awful quick that way. I’m talking about the fact that the majority of the profits in the markets are made by those on the inside, not the unwary speculators. If the public really knew how much stock prices are manipulated and controlled by insiders, there would be a riot on Wall Street tomorrow. Unfortunately, the very people they believe they can trust (brokers, advisors, etc.) most of the time are getting paid under the table to tout XYZ stock, or are just simply churning their clients’ accounts with multiple transactions to pad their pockets with commissions. But, I digress.

The reason why I’m posting this is because I wanted to prove that it is possible to catch a stock “in the act” of the accumulation phase, and to provide my readers with a real-life, real-time example of a stock that is bound to rise in the relatively near future. So, I was screening some stocks tonight and I came across Palatin Technologies (PTN), traded on the AMEX. I believe they’re some kind of biotech company, but I’m not sure, and I really don’t care. Once I saw the chart, I was sold. I found them through a screen by price, for stocks trading under 25 cents per share. As of this writing, PTN closed at $0.1835 today (July 1st, 2008). When I pulled up the chart I almost crapped my pants. It is almost ridiculously obvious that this stock is gearing up for a serious move north. Look at the one-year chart of PTN:

Folks, that’s about as picture-perfect as you could ever want a stock chart to be if you’re looking to make money trading penny stocks. Here we have an almost completely horizontal line, with a fairly tight trading range except for a couple of pretty significant moves—one run up in late February and one sell-off in mid-May. The part that I want to call your attention to is the activity that has happened this past month, in June. It’s easier to see what I’m talking about when you look at a three-month chart:

It’s almost ridiculously obvious that the price was being held within a certain trading range for the majority of the month of June. There was a strong support at $0.20, with prices never closing below it for almost the whole month, which all of a sudden became the primary resistance point in the last few days of the month. The price is being gradually scaled down…this is not a panic sell-off by any means. This is a manipulation of the stock’s price to make it appear as though it’s a “dog” when in fact it’s a diamond in the rough. The more discouraging the price action looks to the average speculator, the more opportunity is present. I’m not a “market soothsayer” or anything like that, but I’ve been doing this for years, and I have seen set-ups like this a thousand times over, and I’m telling you right now, PTN is getting primed for a good rise. I don’t believe it’s going to be any time in the very near future, although I could be wrong. I think there will probably be quite a bit more sideways action first before the stock begins to “percolate”. If I’m wrong, I’m wrong, but I’ve seen many, many chart patterns just like this one, and all of them have turned out to be large gainers in the future. All I can really say now is, time will tell.

Well, if you wanted a real-life example, that isn’t me talking from hindsight, but actually showing it to you as it happens, you’ve got it in PTN. I’ll tell you this much…I’m in. I’ll make my purchase more than likely on Monday following the 4th, since I have to wait for the funds to clear my account. I hope that nothing jumps off after the holiday, although markets are prone to do that, because I want to be in the trade before it does! At any rate, this post is really long, so I’m going to close it out now…just keep in mind that if you’re looking to buy penny stocks, look for stocks with charts like PTN—they’ll definitely do the trick.