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Todays is : Thursday, 09 September 2010
Warnings About Penny Stock Market


Some guys claim to be fundamentalists, basing their trading decisions on company's fundamentals, the financial data of companies. I think that’s mostly hogwash since so few pinks and companies on the OTCBB ever make a single dime. With the pinks, we don’t even know most of time what the balance sheet looks like, so when someone tells me he’s a fundamentalist playing OTCBB stocks and pinks, I know the guy is pulling my leg.

Some people heavily rely on TA, technical analysis, or what is commonly referred to as charts, to make their trade decisions. Most folks won’t outright claim that the charts predict what a stock will do in the future but they strongly imply so with their positive attitudes about what their charts say – a lot of weasel talk here too.
Common sense tells us there’s nothing that will predict the future. If charts were accurate, we’d all be using them, making money right and left and already be on the beach, having previously made our millions in the stock market.
Big boys, the MM-s and those on Wall Street with enough capital and in a position to influence the PPS of penny stocks, know a lot of people use charts. The big boys, will use the charts against the little investor. They know what the charts predict and will force the stock’s PPS to move – manipulate it, in exactly the opposite direction.
Penny stocks move mostly on rumors and news, or rumors of news. They move too of course on financial information when it’s available. Charts are designed to reflect movement of a PPS based on normal economic indicators. However, one PR with either good or bad news can send a penny stock’s PPS quickly in one direction or the other. Charts can not and do not take into account news and rumors.
It's good to have a basic knowledge of charts but do not use them to help you make a buy and sell decisions. Charts are helpful however in that you have to spend a lot of time on them, so you become more familiar with the stock, more intimate. You get a “feel” so to speak for what the stock will do. It’s hard to explain but once you spend a lot of time studying and following a stock, you develop some intuition about what it will do, a sixth sense so to speak.
Beware of companies continually issuing grandiose PR-s but never living up to their promises; the same for companies that promise such and such by a certain deadline and never meet them.
Beware of people on the chat sites that are always totally positive on their favorite stock and criticize anyone that has anything negative to say about it. Often they are hyping the stock. You won’t get an honest opinion from them. These same people will frequently post unrealistic predictions for their stock without any supporting evidence whatsoever, and if you quiz them on it, you won’t get any response.
Beware of folks on the chat sites that write too slick, use the lingo and buzzwords, claim to have many years of experience in the markets and have made hundreds of thousands of dollars in the pennies. These people are almost always hypers. They will write a couple of paragraphs that sound extremely impressive. Readers will come away with the impression that, "This guy knows what he’s talking about", but in reality, a closer examination of his missive reveals he didn’t say a cotton-picking thing.
Beware of companies that claim their stock is down because it’s been naked-shorted. Often times the company will claim it’s gonna sue the world and correct the ugly practice of naked-shorting. Naked-shorting does happen, but in most cases, it’s the company simply providing excuses, covering up other flaws.
Whatever you read from companies and individuals on the chat sites, apply your own logic and common sense and see if it makes sense to you. If it doesn’t, then what you’re reading is probably bogus.
In 2005, CMKX claimed to have a gold mine in South America. They issued a PR claiming they were recovering ore from the mine and shipping it by boat to the U.S. for refining. Shipping cost for anything is expensive these days, and the company was shipping tons of dirt to the U.S.? That seemed totally illogical, because it would have been far too expensive to ship dirt to the U.S. As it turned out, the company never shipped an ounce of ore or dirt to the U.S.; none they ever mentioned anyway.
Anything that doesn’t sound right, or sounds illogical, or promises a company has failed to keep, is A Red Flag. When you have three or four or more red flags with one company, watch out! You can perhaps swing trade or flip it, but you’re almost guaranteed to lose your cash if you sit in that stock too long.
If you read or encounter anything about a penny stock that sounds too good to be true, it almost always is.

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