Hot Penny Stocks (Part 3)

Okay, I promised that I would actually show at least one example of some of the hot penny stocks that are out there on the market right now. Let me make one thing absolutely crystal clear: At any given time, in ANY given economy, there are some serious deals to be snapped up in the markets, if you simply have an eye to look for chart patterns that indicate technical strength. In every market and in every sector, there are always the stocks that seem to run counter to what every other stock is doing in that particular sector. These are the “mavericks” (no reference to Sarah Palin, for once) of the markets, the ones that perform well even while the rest of their fellow issues are being battered by current economic conditions. Not trying to cheapen them by any means, but folks, the stocks that fall into this category are truly a dime a dozen, especially in the realm of penny stock trading, mainly because there are just so doggone many penny stocks out there; it’s simply a numbers game. Having said that, I just wanted to point out that tonight I did some research and screened for some stocks in my Ameritrade account (shameless plug), and without even looking very hard at all, I found a stock that I believe is gearing up for a pretty nice showdown when the time is ripe. When exactly will this stock take off? I have no freakin’ idea, and any person claiming to be some kind of “guru” with an inside track on exactly when a stock is going to take off (i.e., they’re giving you specific months or what have you) is either full of it, or a participant in manipulating the stock’s price. Once again, the charts tell you everything you need to know as far as what stocks are “ripe for the plucking”, but the one factor that none of us can control (unless you’re a large institutional investor—crude oil, anyone?) is when exactly the stock will take off. The question of when is not actually as important as just making sure you’re IN the market when it happens.

Anyway, before I get off on one of my many tangents, I wanted to highlight what could definitely be considered one of the “hot penny stocks” floating around out there right now. This one is traded on the AMEX, and its name is Pacific Rim Mining Corporation (hey, didn’t I tell you that mining stocks are trendy?). The ticker is PMU. I love those three-letter tickers; I just love trading the AMEX, and I don’t fully know why. I guess because they have just happened to be my best money-makers over the years. Whether that is by design or pure random chance, I just don’t know, but I do know that it’s been like that since I started trading. I have more recently left from trading OTCBB stocks and moved my interest into the AMEX stocks almost exclusively. So as I was doing my AMEX screener, I found this gem of a stock called Pacific Rim Mining Corporation. Just by taking a look at its one-year chart, you can tell that something is brewing:

Again, please forgive the blurriness of the images; if you're really feeling a wild hair, go to Big Charts and check out the charts in much clearer resolution.

Now anyone that is familiar with trading stocks with support and resistance would be able to recognize the significance of this chart pattern. This is shaping up to be what’s known as an upside-down “head and shoulders” formation. The recent rounded bottom is a good sign of technical strength. This formation is even more prominent on the 6-month chart:


Notice the first shoulder took shape between the first of August and the end of September. It is somewhat of an elongated first shoulder, but a shoulder nonetheless. The beginning and end of the shoulder both found resistance right at the $0.40 level. It hit a low of about $0.15 during that shoulder formation period, with an average low of about $0.20 per share. We are right now in the midst of the head rounding out, and I wouldn’t be surprised to see the $0.20 resistance get slightly broken, and then a retreat from that level back into the teens, long enough to form the second shoulder. I’ll say this with about as much confidence as I can muster for someone that can’t see the future, that if PMU cracks $0.40 again, and closes above that level, I believe it will revisit the $0.80 level and possibly beyond, since that’s the level where a dramatic drop in price took place back in early July ’08. Just look at the 6-month chart again carefully; that $0.40 level is an obvious psychological barrier, and if that ever gets broken, it will be a lot like the 4-minute mile. When Roger Bannister first ran the 4-minute mile, it was revolutionary, but within a year from his achievement, several other people all of a sudden cracked that 4-minute mile as well. If the PMU’s price begins to see that there is “life beyond $0.40”, trust me, it will explore just how high it can really go. This is a lot like what happened with Crude Oil prices this year; once that $80.00-per-barrel barrier was broken, and then the biggie of $100.00 per barrel was broken, just the sheer phenomenon of the whole thing carried prices far beyond that level. This happens all the time in the penny stock market, and you’ll definitely see many more examples of it when you’re looking for penny stocks to buy.

So in conclusion, keep your eyes on PMU—it’s definitely a penny stock that’s showing all the right signs. As with all investments, anything can happen, so I would be foolish to make any guarantees, but I could show you several examples of penny stocks that hit big that had the same price action as PMU. Until we trade again…

Oh, by the way, MERRY CHRISTMAS!!! Jesus is the reason for the season, for real.

Hot Penny Stocks (Part 2)

There is now and has always been a certain stigma around the world of penny stock trading, and it seems as if most people who venture into this field of investing do so with a mentality that they want to uncover the latest hot penny stocks that are out there, with the idea that they’re going to be like Jed Clampett from the Beverly Hillbillies and strike it rich from one lucky gamble. So, they subscribe to all kinds of newsletters, and get sucked into all kinds of bogus recommendations from companies that are practically being paid to tout a stock that probably has little to no merit, all in the name of finding that one hot penny stock that will shoot to the moon and solve their money problems forever. Folks, this is fantasy. It’s a complete farce. Most of these so-called “recommendations” are simply paid promotions; nothing more, nothing less. I love it when I get a fax from those “alert” services, promoting some penny stock that, based on how the report reads, is about to explode into the stratosphere. It’s almost always some energy, biotech, or national security type company, as most unwary investors believe that these are the real “hot” markets, and the ones that contain the penny stocks that hit big. Trust me when I say, the penny stocks that really move & shake fly well under the “popularity” radar. There really is no industry or sector that’s off limits as far as finding profitable penny stocks is concerned. Once you learn how to use price and volume information in penny stocks, you are guaranteed to find winners that are on the rise, regardless of what sector they fall under. True, there are some definite deals to be found in the biotech sector, the oil & mining sector, and other popular sectors, but the point I’m making is that there’s just as many penny stocks on the rise to be found in other sectors as well. It’s all in knowing what to look for, and if you have taken a decent look at my archives, I have shown you in a nutshell what to look for over & over: Look for the price chart to display quiet price action in a relatively tight trading range, with relatively low but consistent volume. In other words, you want stocks that look like they’re carrying on “business as usual”, with no abnormal spikes in price or volume for a good period of time. Once you find a stock that’s fitting this type of criteria, you know you’re on to something.

The truth is, it’s the “boring” stocks that are the ones that are really setting up for a major move in the future. If you see a stock that has a price chart reflecting very sporadic price action, with crazy spikes and dips all over the place, you know it’s one that you’re going to have to avoid, due to the unpredictable volatility. You’re looking for stability in your penny stocks. You’re looking for the very thing that most gambling investors overlook, and that’s the stocks that are not “exciting”. Let me clear one thing up while I’m at it: Penny stock trading can definitely be exciting, but I’m not in this for the sake of the excitement. I’m in it for one reason only: To make MONEY. Period. I think that a lot of people hang themselves in the markets and speculate with stocks that aren’t profitable because the stocks are more “exciting” to watch, or happen to be in an “exciting” sector (i.e., mining, biotech, etc.). So while they’re getting their thrills in the markets, they’re trading accounts are dwindling, because they would rather seek thrills and use reckless trading methods (or no methods at all) for the sake of excitement. Screw excitement, man, I wanna make some money! The only way to ensure that is to remove emotions out of the equation, and knuckle down to some serious study of price charts. History will tell you everything you need to know. As Winston Churchill said, “The farther backward you look, the farther forward you can see.” (Well, I think it was Churchill anyway—I’m not going to look it up.) Studying price charts will give you a good feel of the rhythm of the markets (and yes, there is such a thing), and how human greed and excitement and fear can factor in to stock prices. This is not trying to be some clairvoyant; it’s truly understanding the trends and patterns that define (and can often predict) a stock’s behavior. It’s definitely more of a science than any other investment methodology I could name.

So yes, while the advisory services that advertise lists of hot penny stocks have their place, and I’m not fully against what they do, I just believe in good old-fashioned self-directed research.

Hot Penny Stocks

I had to chuckle a little bit when I started thinking about how I was going to cover the topic of hot penny stocks in today’s investment climate—many people are wondering if anything at all in the realm of the stock market can be labeled as “hot”. And honestly, I’m being just a slight bit facetious when I’m using the term “hot penny stocks” because those who know me know that I don’t play those games of touting some stock based on hype alone and not based on solid price action according to the stock’s chart. If you don’t learn anything else from me…shoot, if you haven’t learned anything at all thus far, PLEASE remember that the chart is king. Price action is king. It’s almost like a pilot who trains to be an instrument-rated pilot; he learns how to move beyond just flying based on his eyesight, and now has to move into a different level of perception where he must rely solely on the instruments to tell him which direction he needs to be flying. This can be scary, especially when all he sees in front of him is a huge hunk of clouds, and no visibility at all to the ground or anywhere else. He must rely on what the instruments are telling him about the climate, the temperature, his altitude, and so forth. The same thing applies to penny stock trading: You are going to encounter a lot of “noise” out there, and much of it is designed to distract you away from simply relying on those chart patterns that you’re so familiar with. There will be plenty of temptations for you to want to “embellish” upon the system of simply trusting what the charts are telling you, and instead you’ll want to immerse yourself in company data, earnings reports, advance/decline stats, commitment of traders reports, P/E ratios, industry news, comparisons to other stocks in that sector, on and on and on. To take some words from a very famous book, “Be not deceived”. If the chart is not telling you to make a move, don’t make a move. If the chart hasn’t shown you sufficient evidence to enter the market, don’t enter the market. Don’t get into a stock based on hype or emotion alone. That’s pretty much what fundamental analysis boils down to…at its root, it’s simply emotional trading. It’s always basing your trades on the promise of what the company will do, or how they will perform, with honestly very little empirical data to back up any claims of future growth—most of the time it’s based on a whole lot of conditional promises—things like “IF the company can secure these contracts”, or “IF the industry demand begins to lean towards these types of products or services”, but there’s very little real-deal concrete evidence to back up any claims made. This, in my mind, is no way to make a trading decision, but yet you have people in the fundamental analysis crowd (not naming any names, but one big online presence that rhymes with “snotley drool”) who criticize technical analysis and dismiss it as “fortune telling” or “soothsaying”, but yet the charts are concrete historical evidence of certain trends and patterns that reoccur, and have a high probability of occurring again in the future. This the basis of meteorology; they simply study the past 100 years of weather patterns for any given day and they make an educated guess based on statistical probabilities about what the weather will be like tomorrow. Not a big deal, and it seems to be more of a solid science than banking your investment decisions on some prospective “hot product” or projections of future growth. This doesn’t take into account the “book-cooking” that can happen behind the scenes in a lot of corporations, along with a host of other types of fraudulent practices that may be going on under the surface…but a stock’s price chart will tell you EVERYTHING you need to know, as all of these potential unseen problems will be factored into (and reflected in) the stock’s price action. That’s one area where the insiders can’t really hide what they’re doing, is on the price chart…it’s in plain view to everyone, if you know what to look for.

Well, I wanted to get further into what I believe are some good stock picks, or some hot penny stocks if you will, to keep an eye on, but it will have to be for a future post. Gotta go…see you next time.