Penny Stocks to Watch for 2011

I usually try to stay away from any language that smacks of hype or sensationalism when it comes to trading penny stocks, mainly because I have realized over the years that it takes an emotionally level person to be able to successfully trade penny stocks (or any other financial instrument for that matter). So when I decided to highlight some penny stocks to watch for 2011, I made sure to word the title of my post in the most bland way possible, because God forbid I should ever be accused of peddling over-hyped penny stock picks disguised as “recommendations” (read: pump-and-dump). Look, I’ve said it before in my past post about bargain penny stocks: You can identify penny stocks with potential all day long, but even if you are 100% accurate with your predictions, it’s all about how you actually trade that stock in “real-time” that matters. It’s all about properly entering and exiting the trade based on pre-determined profit targets and loss thresholds. It’s all about having a (gasp) PLAN and trading with self-discipline. These are the “intangibles” that a lot of traders simply don’t possess, and that’s why fully 95% of all people who trade these markets lose money over the long haul. I would much rather be like John Henry or one of the other traders highlighted in Covel’s “Trend Following” book…employ a consistent trading methodology that maximizes winning trades while quickly exiting losing trades. This is easier said than done, and I have learned the hard way how totally useless your emotions are when it comes to making trading decisions.

But enough of the bullsnockery, let’s get down to brass tacks and talk about some of the stocks I have discovered over these past few days that have really caught my eye. I found them through my trusty TD Ameritrade screener tool. Basically, I customized a stock screen to give me stocks trading on the NASDAQ or AMEX that are within the $0.10 to $0.50 price range (this has proven to be my favorite price range for reasons I still don’t know). I never look at P/E ratio or any of the other fancy qualifiers; they really don’t mean one thing. Price action is and always has been the ONLY important factor to me. I let the screener do its work and then manually went through the over 60 results it gave me. Here are the “stand-out” stocks (in my humble opinion) to keep an eye out on for 2011:

American Defense Systems Inc. (AMEX: EAG) – This stock has had some very suspicious price action since September 2010 on the 1 year chart. Have a look-see for yourself:


EAG has been consistently banging up against that resistance at $0.20, with only one close above $0.20 in over 4 months (just eyeballing it). This is highly suspect, and it looks as though momentum is generating for a crack above the $0.20 level sometime this year. I’m not into trying to nail down specific dates, so don’t even expect that from me. But, although the base is somewhat immature right now, rest assured that when the breakout above $0.20 comes, it won’t be a wimpy move, it will more than likely be a violent spike kind of move, possibly lasting only a handful of trading days. This is my personal take on EAG…your own trading decisions are up to you.

Next up is Orsus Xelent Technologies Inc (AMEX: ORS). This chart almost made me crap my pants when I saw it. Check it out (1 year chart):


Currently ORS is trading at $0.18, and let me tell you, that’s a heck of a deal for this stock. This is one of those stocks that I would buy (and believe me I’m planning to) before the breakout and wait, because again folks, I’m telling you, I’ve seen this stuff enough times to spot a winner in the making. ORS is a winner in the making, for real. Once again, I have no earthly clue when the breakout will happen, but from September of 2010 until now, you have about as perfect of a base as you’ll see from a penny stock. This is a technical trader’s dream. As with EAG, interestingly enough $0.20 is a strong resistance point for ORS. If you see a strong breakout and a decisive close above that $0.20 level, look for some real fireworks. The gradual decline from $0.50 (without a collapse in price), the tight intraday trading ranges based on the OHLC bars, and the near-perfect 4-month sideways channel spells out a move of at least 100% in my opinion. This is a stock that I fully believe could double your money in 2011, IF the breakout happens. If this type of accumulation continues throughout 2011 WITHOUT any kind of a breakout, not only would I be completely surprised, I would also probably jump on board with twice as much enthusiasm, because then we would be talking about a seriously strong base. But as ORS stands right now, it’s a prime candidate for a strong move, quite possibly in the first quarter of this year. Again, I am just speaking from my gut and I am not a “market psychic” or anything like that, so take my comments with those points in mind.

The next head-turner, although it has a somewhat immature price formation, is Crystallex International Corporation (AMEX: KRY). Check out the chart, and you tell me what you think:


The tightly-wound price action of the past month centered around the $0.30 price range is highly suspect in my mind, and it looks as though the smart money is quietly accumulating shares all around this price level. I will admit, due to the short time span of this accumulation, at this point the stock could go either way, but I believe that if we can see a little more sideways chop, possibly for another month or so, in a tight trading range as it has been, we’ll see a good move from KRY.

The last one I’m going to highlight for now is actually “old faithful” in my mind, and that’s Cell Therapeutics Inc (NASDAQ: CTIC). It has had a couple of “pops” since I first highlighted it in my post on penny stock picks, but the show is far from over with CTIC. You can look at the “Penny Stock Picks” post to see a recent chart of CTIC—not much has changed since I posted it a while back. It closed today at the very plain-vanilla price of $0.38, nothing new. Again, there’s no telling how long it will continue to accumulate and stay in this boring trading range, but the longer the better in my mind. Patience is the name of the game when you’re learning how to trade penny stocks online. The insiders are very patient, and they know how to wear the public’s patience thin in order to induce selling, allowing them to snap up even more shares at a discount. Then, right when everyone has all but permanently counted the stock out, the hype machine begins, the stock gets “popular” again, and the price skyrockets to keep up with the increased demand by the retail public. Next thing you know, Average Joe has once again bought at the top and taken the shares off the hands of the smart money, only to be left holding the bag a short while later. What a sad drama this penny stock trading casino is. But, if you know how to read penny stock charts and can use price action to your advantage, great money can be made by just paying attention. To close, I recommend that you do your own homework, don’t take my words as the gospel, but rather learn to read penny stock charts for yourself. I am NOT in the business of giving investment advice, just sharing the stocks that stand out to me, and also sharing my reasons for the choices I’ve made. I hope it gives some of you an insight into what to look for when trading penny stocks. Ultimately, though, experience will always be your greatest teacher. Ninja Trader Guy, over and out.