Penny Stocks and Price Action

I really should subtitle this post “CTIC: Back on the Radar”, because that’s exactly what I’m gonna write about. When studying penny stocks and price action, you have to really keep an open mind and a willingness to admit that your first instinct or your first ideas could be wrong, and you must in EVERY way defer to the price action on the stock’s chart as your main indicator. I know of some technical traders who have 10,000 indicators they try to track to give them a so-called better picture of what the stock is going to do. They follow the Williams %R indicator. They follow the overbought/oversold indicators, the advance/decline indicators, the moving averages (simple and otherwise, 50-day, 100-day, etc. as well), the MACD, Bollinger Bands, Elliott Waves, and the list goes on and on. Their customized price charts look like an abstract painting by the time they layer all of the indicators on top of it. Most of the time you can barely even see the actual OHLC bars by the time it’s all said and done. I say screw all that crap. Ted Warren didn’t need ANY of those indicators, and still made a very comfortable living trading penny stocks as well as blue chips. You know why? Because all he focused on was price action. That’s it. And what exactly do I mean by price action? It’s really simple—what price did the stock open at, what high did it hit, what low did it hit, and what was the closing price for that day. All of this can be ascertained with even a very basic OHLC (Open, High, Low, Close) bar chart. Those vertical bars with very small horizontal bars sticking out of them represent one day worth of trading. They remind me of those utility poles or telephone poles with the metal pegs sticking out of them sideways for the utility workers to stand on. On a bar chart, the sideways “peg” sticking out to the left is the opening price of the stock. The high price of the day is simply the highest part of the vertical bar. The lowest price of the day is the lowest part of the bar. And the closing price is represented by the other horizontal “peg” sticking out to the right. It’s really all very simple. And remember, each vertical bar represents a trading day, not each consecutive day of the week. There are usually only five trading days in a week, barring federal holidays and so forth. So, basically, every five bars on a daily chart represent a week’s worth of trading. On a weekly chart, each vertical bar represents a whole week’s worth of price action. These types of charts are good for more long-term perspective and study. My usual pick is the daily chart, especially in terms of penny stock trading, because penny stock price moves usually have a smaller lifespan than the blue chips.



Anyway, back to CTIC (Cell Therapeutics, Inc). Check out the 6-month chart of CTIC above. Why am I bringing it up again, after it moved fairly significantly back in October of 2010? If you remember a little farther back, I had highlighted it as one of the bargain penny stocks I had my eye on back in September. I remember that I said it would probably pop up and then pretty much deflate to the “twenty-or-so-cents” level. I was actually proven wrong, as the stock has found a pretty solid floor at the $0.35 level. CTIC has not closed below $0.35 since late June, when a fairly massive selloff took place. Since that time, we’ve seen very solid support at the $0.35 level, and fairly obvious resistance at the $0.40 level, with the stock only “peeking” above that level one time in mid-October. Judging from the price action, it seems—and I say this with caution—that someone put the “gag order” on that move in October before it really had a chance to skyrocket. It was almost like there was a great impetus given for the stock to rise, and the price action proved it (as well as the volume), but then it was “bottled back up” and retreated to its very obvious trading range of between $0.35 and $0.40. Something is definitely amiss here. Not to seem like a conspiracy theorist (although if you think that Wall Street operates with no collusive efforts whatsoever, you’re extremely naïve), but I really feel, especially since the stock did NOT retreat to the mid-twenty-cents level from that pop in October, that a greater move is at hand. I am thoroughly impressed with CTIC’s technical strength right now. It really seems to be gearing up for something bigger. A break AND CLOSE below $0.35 may spell some serious trouble and even jeopardize this move, but a strong break and close above the $0.45 level could really send prices higher. If you’ll notice carefully, in all the hype and hoopla of the October price rally, it never once closed above $0.45, although it hit prices as high as $0.49, and made a big fanfare of it for a few days in a row. But again, no close over $0.45. This is very suspect in my mind. We need a good, strong close above that very obvious $0.45 resistance to really get CTIC moving. As to when that’s gonna happen (or if it will even happen at all), I haven’t a clue. But the price action of CTIC would lead me to believe that this stock is far from done. It would have fallen apart by now otherwise. So, in my mind, CTIC at the current price of $0.37 (or really anything below $0.45) is still a good buy. Just one man’s opinion.