For the last eight weeks [June, 2006] I’ve been spending a lot of time reading articles describing current market conditions… trying to figure out if this is really affecting penny stock investors.
Are we in a bull market… or are we entering a bear market. Or is the recent rally just a dead cat bounce?
A dead cat bounce refers to a short-term rebound in a downtrend. There is a (relatively) old saying in investing: Even a dead cat will bounce if it is dropped high enough.
It doesn’t matter how you slice it. I’m not even sure it matters to penny stock investors like you and me.
For example. Stocks rose in Japan this week on reports showing growth in manufacturing and exports. Markets across Asia rose as investors took heart from Wednesday’s gains on Wall Street.
Strong earnings reports from two leading stocks gave penny stock investors hope that rising interest rates would not kill profits. One economist said the recent sell-off was “just turbulence”.
It looks like the turbulence continues on this side of the pond as well. US stocks traded flat to lower on Thursday, while high oil prices and negative economic data dampened Wall Street’s momentum. So, what should we believe, is the market going up… or down?
How does the market look in general? When it comes to stocks, the S&P index is up just 0.3 percent for the year, while the Dow is up 3.4 percent and the NASDAQ is down 2.9 percent. Not brilliant data.
But for penny stock investors, the recent bumpy ride that has left many seasoned blue-chip investors reeling is just business as usual. We know that penny stocks are often volatile and unpredictable.
While a penny stock can be more vibrant when the market is upbeat, in general, a penny stock marches to its own tune. Why? Few investors venture into the penny stock space because they are either unwilling or unable to do the work required to accurately predict what these stocks might do.
By their very nature, it’s nearly impossible to know at what price a penny stock should trade, and traditional financial ratios and sector benchmarks are rarely effective metrics for understanding the value of a penny stock. One-day big gains and losses are not uncommon for penny stock traders.
So really, bull, bear or cat… it’s just another day at the computer screen for penny stock traders. The work can be fun… but it’s not easy. Of the 14,000 publicly traded companies in the U.S., about 3,300 are considered penny stocks, traded on the OTC Bulletin Board operated by NASDAQ.
They have low visibility, chances are high that you have never heard of their CEO and I doubt they have a corporate following. While they are highly speculative, the more promising ones have targeted business plans and solid positions in niche markets. And for now they fly under Wall Street’s radar
So what do you do in an unpredictable market like the one we’re in? Keep applying the same principles you’ve always used when looking for the untapped penny stock. And enjoy the volatility.