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Four Signals A Penny Stock Is Going To Rise
If you are a smart investor, you rely on a lot more than just a tip from your uncle before you invest in a stock. Since penny stocks have the reputation of being slightly more risky than regular stocks, most people need quite a bit of evidence that a penny stock is going to be a sound investment before they are willing to part with their hard earned money. Here are a few of the major signs you want to look for before you fork over your cash and invest in a hot new penny stock.
Buzz
Since the technology that governs our 24/7 world is always updating, always refreshing and always searching for the next big story, it is almost impossible for any stock, penny or otherwise, to hit it big without a groundswell of buzz preceding it. Before the news organizations can begin talking about Penny Stock A, you hear people on websites chattering about it, your broker may call you and alert you about a possible investment opportunity or you may hear something from a friend at work. The problem with buzz is that there is nothing concrete behind it, only speculation. If you are making your stock investment decisions based solely on buzz, than you need to take a second look at what you are doing before you end up in the poor house.
News
The next signal a penny stock to watch is going to increase in value is a flood of good news. When you look at the continuum of stock evolution, concrete news is always the next step along the line after solid buzz. The rumors that a stock was about to receive government approval come true and, often times, penny stock prices begin to take off that very day, but sometimes, there is a small delay as more and more people realize the potential this penny stock has. This is a good time to get ready to buy.
Spike In Activity
While it is always good to get in at the point where the stock price is the lowest, it is also risky because you never know if you are going to be the only one buying when everyone else is selling. Once you begin to see genuine forward momentum on a stock that didn’t have it before, than you know it is a good time to buy. The trick here is to get in just as the stock price begins to rise. In the olden days, stock tickers weren’t quite what they are today. Now, monitoring stocks is much simpler than it was before, so g
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etting in while the getting is good is easy.
Universal Praise
If you see that your penny stock is making headlines in the financial press and receiving universal praise from analysts across the board, the stock price has likely already begun going up, but it isn’t too late to get in on the fun, especially if forecasters are predicting big things for your penny stock in the future. There are many signals that a penny stock to watch is going to be increasing in value, the key is to know when to buy and when to show restraint.
By: Brent Crouch
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What Are Penny Stocks?
Visit WhatArePennyStocks.net for your one stop resource for all current news, research, and advice related to penny stock investing.
www.whatarepennystocks.net
Penny stocks are usually not listed at the major stock exchanges like the New York Stock Exchange (NYSE) or the NASDAQ because they don’t meet the listing requirements. Listed stocks must have a minimum number of shareholders, minimum assets and file financial reports regularly. They are also under the strong supervision of the SEC, the Securities and Exchange Commission.
Penny stocks are usually traded on the OTCBB or on the Pink Sheets. The OTCBB (OTC Bulletin Board) is an electronic quotation system for over-the-counter securities that are not listed with one of the national stock exchanges. The only requirement is that the companies file financial reports to the SEC. If not, the company is removed from the OTCBB listing and the stock can only be quoted on the Pink Sheets. The Pink Sheets activities are not supervised or regulated by the SEC.
If the company has less than $10 million in total assets or less than 500 shareholders in total then no filings must be done at all.
Penny stocks are for these reasons wide open to scams and manipulation. The stock price is usually far below $5 and market capitalization is very small as the companies itself are very small. The lack of reporting requirements can make it difficult to find verified information about the company, its financial situation and outlook.
Many fraudsters take advantage of this and publish misleading information to manipulate the stock price. Because of the lack of public interest and low number of shareholders the trading volume is generally low. This means that a few buy or sell orders can have dramatic effect on the share price.
The low liquidity is at the same time the biggest advantage of penny or micro-cap stocks. While a listed stock can almost never move several hundred percent within a few days, a penny stock can do that easily. The low share price makes it possible to acquire a big amount of shares with a small amount of money. Little price increases or decreases have therefore big impact on the performance.
The low stock prices and limited capital requirements often attract novice traders but penny stocks are definitely a playing field for experienced investors only. Penny stocks are high risk investments. Many companies won’t probably succeed and go bankrupt. The shares will end up worthless.
Many penny stock companies have no or very limited working capital, assets or are in development stage for months or years before any revenues can be expected. Be aware that you probably can’t sell your shares for days or weeks or only at a big discount because of the limited liquidity.
About The Author
David A. Sorenger is a stock market expert and provides detailed information on stocks, options and online brokers at his web site http://www.StockTradingABC.com.
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