Penny stocks (stocks that trade at under $5.00) fall
into two broad categories that reflect sharply different
long-term outlooks. First, low-priced start-ups transition
from over the counter markets onto the national exchanges
through initial public offerings (IPOs), with torrid growth rates
or bullish stories having the power to attract substantial
speculative capital and strong uptrends. Sadly, IPO filing
activity will end 2016 at the lowest level since 2009, with
the 46% year over year decline making it harder than ever
to find these future winners.
Beaten down companies comprise the second and larger
category, with sharply lower prices forcing them to rely on
bottom fishing to break long-term bearish trends. A basket
of risk management tools is needed when trading these issues
to avoid pitfalls that include secondary offerings and sweetheart
deals with big investors. Tight stops, smaller positions, and
aggressive exit strategies go a long way in building consistent
profits while once mastered, required skill sets become lifetime
market edges that support a broad variety of market strategies.
1. Parker Drilling Co (PKD)
Parker Drilling Co (PKD) topped out in the upper teens
in the 1990s and posted lower highs in 2006 and 2014.
A 2-year downtrend may have ended at 98-cents in January
2016, with subsequent price action carving a vertical buying
wave that stalled at $3.16 in April after mounting the 200-day
EMA. It pulled back into November, hitting an 8-month low at
$1.85 and turned higher after the election, jumping back above
the moving average.
The recent rally may have broken the blue trend line of lower
highs and resistance at the 200-day EMA, setting the stage
for an uptrend with a first upside target at the April 2015 swing
high above $4.50. It’s been basing on top of new support for the
last three weeks and could challenge the April high in January.
The 200-day EMA marks the line-in-the-sand for this trade setup,
favoring a logical stop loss under $2.25.
2. Taseko Mines Ltd (TGB):
Vancouver-based Taseko Mines Ltd (TGB) hit an all-time
high at $14.25 just four months after coming public on the
U.S. exchanges in 1994. The subsequent downtrend finally
bottomed out at 11-cents in 2001, giving way to a multiyear
uptrend that ended at $6.40 in 2008. A 2010 test at that level
attracted aggressive selling pressure, generating a new downtrend
that may have ended at a 12-year low in January 2016.
The subsequent recovery has unfolded in two rally waves that
have lifted the stock into resistance at the 2015 swing highs
just below round number resistance at $1.00. It tagged that
milestone on December 7, pulled back and is testing it once
again as 2016 draws to a close. A breakout should generate
healthy momentum, supporting a continued uptick that faces
a major barrier when it reaches the broken 2014 lows at $1.80
(red line).
3. Hovnanian Enterprises Inc (HOV:
Hovnanian Enterprises Inc (HOV) gained significant ground
during last decade’s real estate bubble, lifting to an all-time
high at $73.40 in 2005. The subsequent decline nearly bankrupted
the homebuilder, coming to rest at 52-cents in March 2009. The stock
has underperformed its peers by a wide margin for the last 7-years but
could play catch-up under the Trump administration.
Higher lows in 2011 and 2016 have added to a low base that
may yield a new uptrend. On Balance Volume (OBV) entered
a distributive phase in 2013, posting lower highs into the first
quarter of this year. It’s gained ground since that time, signaling
accumulation by bottom pickers and value players. That buying
pressure is finally translating into higher prices, with the momentum
surge since early November doubling the stock’s price. The 50%
retracement of the 2013 to 2016 decline at $4.32 offers a conservative
upside target.
4. Intrepid Potash Inc (IPI):
Intrepid Potash Inc (IPI) came public in the upper-40s in
April 2008 and posted an all-time high at $76.24 just two
months later. It fell into the lower teens during the bear market
and posted a lower high near $40 in 2011. The bottom dropped
out of a channeled downtrend in 2015, dumping the stock to an
all-time low at 65-cents in March 2016. It’s recovered in two buying
waves since that time and is currently trading near a 10-month high.
The stock lifted above resistance at the 200-day EMA earlier this
month and has held above that level for the first time since September
2014. Aggressive selling pressure returned early this week, just two
weeks after the company hired Cantor Fitzgerald to explore strategic
alternatives. Despite this burst of pessimism, the company could sell
at a premium in coming months, rewarding new positions.
5. Ritter Pharmaceuticals Inc (RTTR):
Ritter Pharmaceuticals Inc (RTTR) came public at $5.00 in
June 2015 and entered an immediate downtrend that posted an
all-time low at 98-cents in February 2016. The subsequent uptick
stalled below $1.90 in May, giving way to a broad pullback that
posted a higher low at $1.20 in September. It turned sharply higher
into October, reaching the 50% selloff retracement level at $3.25.
A pullback into November got bought, triggering a test of the high
that’s still in progress as the calendar flips into January. OBV has
carved a stairstep accumulation pattern, consistent with an uptrend
that could eventually lift well above last year’s IPO. For now, market
players can buy a breakout above $3.25, in anticipation of continued
upside into the .786 Fibonacci retracement level at $4.52.
into two broad categories that reflect sharply different
long-term outlooks. First, low-priced start-ups transition
from over the counter markets onto the national exchanges
through initial public offerings (IPOs), with torrid growth rates
or bullish stories having the power to attract substantial
speculative capital and strong uptrends. Sadly, IPO filing
activity will end 2016 at the lowest level since 2009, with
the 46% year over year decline making it harder than ever
to find these future winners.
Beaten down companies comprise the second and larger
category, with sharply lower prices forcing them to rely on
bottom fishing to break long-term bearish trends. A basket
of risk management tools is needed when trading these issues
to avoid pitfalls that include secondary offerings and sweetheart
deals with big investors. Tight stops, smaller positions, and
aggressive exit strategies go a long way in building consistent
profits while once mastered, required skill sets become lifetime
market edges that support a broad variety of market strategies.
1. Parker Drilling Co (PKD)
Parker Drilling Co (PKD) topped out in the upper teens
in the 1990s and posted lower highs in 2006 and 2014.
A 2-year downtrend may have ended at 98-cents in January
2016, with subsequent price action carving a vertical buying
wave that stalled at $3.16 in April after mounting the 200-day
EMA. It pulled back into November, hitting an 8-month low at
$1.85 and turned higher after the election, jumping back above
the moving average.
The recent rally may have broken the blue trend line of lower
highs and resistance at the 200-day EMA, setting the stage
for an uptrend with a first upside target at the April 2015 swing
high above $4.50. It’s been basing on top of new support for the
last three weeks and could challenge the April high in January.
The 200-day EMA marks the line-in-the-sand for this trade setup,
favoring a logical stop loss under $2.25.
2. Taseko Mines Ltd (TGB):
Vancouver-based Taseko Mines Ltd (TGB) hit an all-time
high at $14.25 just four months after coming public on the
U.S. exchanges in 1994. The subsequent downtrend finally
bottomed out at 11-cents in 2001, giving way to a multiyear
uptrend that ended at $6.40 in 2008. A 2010 test at that level
attracted aggressive selling pressure, generating a new downtrend
that may have ended at a 12-year low in January 2016.
The subsequent recovery has unfolded in two rally waves that
have lifted the stock into resistance at the 2015 swing highs
just below round number resistance at $1.00. It tagged that
milestone on December 7, pulled back and is testing it once
again as 2016 draws to a close. A breakout should generate
healthy momentum, supporting a continued uptick that faces
a major barrier when it reaches the broken 2014 lows at $1.80
(red line).
3. Hovnanian Enterprises Inc (HOV:
Hovnanian Enterprises Inc (HOV) gained significant ground
during last decade’s real estate bubble, lifting to an all-time
high at $73.40 in 2005. The subsequent decline nearly bankrupted
the homebuilder, coming to rest at 52-cents in March 2009. The stock
has underperformed its peers by a wide margin for the last 7-years but
could play catch-up under the Trump administration.
Higher lows in 2011 and 2016 have added to a low base that
may yield a new uptrend. On Balance Volume (OBV) entered
a distributive phase in 2013, posting lower highs into the first
quarter of this year. It’s gained ground since that time, signaling
accumulation by bottom pickers and value players. That buying
pressure is finally translating into higher prices, with the momentum
surge since early November doubling the stock’s price. The 50%
retracement of the 2013 to 2016 decline at $4.32 offers a conservative
upside target.
4. Intrepid Potash Inc (IPI):
Intrepid Potash Inc (IPI) came public in the upper-40s in
April 2008 and posted an all-time high at $76.24 just two
months later. It fell into the lower teens during the bear market
and posted a lower high near $40 in 2011. The bottom dropped
out of a channeled downtrend in 2015, dumping the stock to an
all-time low at 65-cents in March 2016. It’s recovered in two buying
waves since that time and is currently trading near a 10-month high.
The stock lifted above resistance at the 200-day EMA earlier this
month and has held above that level for the first time since September
2014. Aggressive selling pressure returned early this week, just two
weeks after the company hired Cantor Fitzgerald to explore strategic
alternatives. Despite this burst of pessimism, the company could sell
at a premium in coming months, rewarding new positions.
5. Ritter Pharmaceuticals Inc (RTTR):
Ritter Pharmaceuticals Inc (RTTR) came public at $5.00 in
June 2015 and entered an immediate downtrend that posted an
all-time low at 98-cents in February 2016. The subsequent uptick
stalled below $1.90 in May, giving way to a broad pullback that
posted a higher low at $1.20 in September. It turned sharply higher
into October, reaching the 50% selloff retracement level at $3.25.
A pullback into November got bought, triggering a test of the high
that’s still in progress as the calendar flips into January. OBV has
carved a stairstep accumulation pattern, consistent with an uptrend
that could eventually lift well above last year’s IPO. For now, market
players can buy a breakout above $3.25, in anticipation of continued
upside into the .786 Fibonacci retracement level at $4.52.
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