Penny Stocks

The penny stock VIPR Industries may be setting up for a move this week.  It is somewhat of a simple setup but could have some juice in it.  Caution is still advised because there is not much sideways cause for VIPR. 

The positives here are the bombshell volume that occurred about 3 days ago on the first spike upwards.  That was on over 100 million shares.  Then the next day retracement downwards was on dramatically lighter volume.  The drop off in volume was substantial and I do not usually see such a dramatic drop off in volume like that after such a big move, especially on penny stocks.  The actual percentage drop off in volume on VIPR was by about 68% which is huge. 

We may have very quality volume here in VIPR.

Then on last Friday price on VIPR starting catching wind again and volume increased substantially to about 67 million shares.  So roughly 60% of the free tradable float could be bought up at this point.

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The penny stock Placer Gold Corp (PGCR) which trades on the pinksheets forms a chart that is worth studying in my opinion.  The chart you see above (click on it to make it full size) is a longer term 2 year daily price chart of PGCR. 

It is worth studying because in my opinion there are some well defined parameters that make for clear cost benefit analysis.  Many penny stock charts that I look at are not so clear.  Typically there is a lot of congestion, noise, lack of price data, and just general confusion in the price chart. Or the price movement has wide swings all over the place and it is difficult to define clear trends or parameters that are worth acting on.

Reason 1

But with PGCR I want to tell you about a few important observations I have made.  For starters, I see long term support at the .002 level.  The .002 level is a significant level and a level that PGCR must hold in order for me to remain open to bullish possibilities.

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I am not seeing too many superb setups right now as of today so I thought I would do a little write up on what I believe to be the important factors that make for the best penny stock setups.

But before I do that CEMJQ might be worth a quick mention.  If it can hop above .25 and stay above there it may be able to get another run started.  Right now the broad market is going into a pretty nasty correction so I am not sure what effect that will have on CEMJQ as of now.  But so far CEMJQ has held up well. A break below .20 would destroy any chances of a good pop in the near term.  So maybe worth keeping an eye on.

Ok, so now what are the factors that make for the best penny stock setups?

I have been thinking about this for quite some time and I can tell you that there are a couple factors that make for the absolute BEST penny stock setups, but they are exceedingly rare.  They are:

• A penny stock that has had a very large upward move, but then has gone into a long sideways consolidation (perhaps forming a large triangle or a head and shoulders bottom formation).
• The previous point has occurred only AFTER a very long decline in the penny stock (ie. long bear market trend).

The reason why the above two points make for the absolute best penny stock setups is because you are doubling your odds of success.  You have a situation whereby a stock has come down after a long bear market but then has entered a new bull phase and THEN gone into a long sideways consolidation… It is that long sideways consolidation that you must watch like a hawk and determine an entry point because then you will be able to ride up with the next major up trend.

These types of penny stock setups are the most ideal because you can ride the trend up for a month or two knowing in full confidence that you are in a bull phase move of the stock.  You also have plenty of CAUSE built after the initial move and sign of strength.

There are three penny stocks that I can think of that made such moves and all three of them were extremely profitable to those that were able to identify the initial structure and then jump on for the next move.

The symbols for the three are SRSR, GSPG and IDGI. Sarissa Resources, GoldSpring, and Inca Designs.

To the left is a chart of SRSR (Sarissa Resources) just to give you an idea visually of what I mean.  The first long red arrow shows the long previous bear trend I was alluding to above.

Then you see that initial large sign of strength move off of the bottom. But THEN SRSR went into a long sideways consolidation forming a symmetrical triangle.  That price action is the mot valuable because it is just churning and cause building for the next big move.  It gives you plenty of time to prepare for the next move and gives you advance notice of it as well.

You will see plenty of other penny stocks make 100% moves from all sorts of formations, but I have found over time that this general structure is the most powerful and reliable in terms of realizing extended profits.

The problem is you do not find these patterns that often.  So if you ever do see one please let me know so I can share it with other visitors here at penny stocks penny stocks dot com.

The other type of penny stock setup that I like to try to find are the dormant bottom variation where you have a penny stock that has been trading very flat for a long time with only minor rallies and spotty volume.  Preferably it will have a very low number of total outstanding shares and a small float as well.  These can be also very tricky to find and identify because of their low trading volume.

What I like to see with these dormant bottom plays is successively higher price ranges, sort of like a stair case.  When you start to see that off of a flat long base, then keep open to the possibility that you will see a very big move coming.  Certainly volume analysis helps a lot too when trying to confirm their possible success rates.

So far I have not been able to find a good piece of scanning software that is able to identify penny stocks that trade in a long flat base. 

The best real time scanning software I have seen so far for pinksheet and otc bb penny stocks is equity feed.  They may have some scans that help identify long consolidating penny stocks with flat bases but I have just not used the software enough to be able to tell you that it can do that.  But there are definitely good volume and price scans contained within equityfeed.

IDOI is a penny stock that trades on the OTC BB and I wanted to give it a quick mention because the chart structure looks fairly attractive to me.  It was up about 55% today on huge volume.

IDO Security makes a security products for airports, schools, and other venues where forcing people to take their shoes off is too much of an inconvenience.  I did not know this but apparently the complexity of many shoes design, in addition to their thickness prevents normal security scanning techniques to be effective on them.

I really think most people hate taking their shoes off at airports and other locations where there are security zones.  It is just one big hassle, not to mention a little bit embarrassing.

The downside of this penny stock is that the outstanding shares are near 1 billion.  However the chart still does look somewhat promising. Looks like a triple bottom to me and a relatively flat base and now a rally with very strong volume off this base.

It seems a lot of the float is bought up if not all of it already.

A form T was also recently filed indicating that the owner has recently bought a good amount of shares.

So do we have a running penny stock here or not?  Well the volume says so, the long base says so, but we will just have to see.

Given today’s big move I am hard pressed to find another good entry point in IDOI.  Probably the best setup is to wait for the first consolidation to see if it has enough legs to stand on and then maybe find a low risk entry that way.  But chasing a penny stock like this one at the highs is a dangerous game.

But I did just want to mention it for watch list purposes.

I did a post a while back about UNCO and was exploring the possibility that UNCO may be coming into a buy point.

Well now we have some hindsight and clearly it can be said that UNCO never activated a REAL buy point as a signal to go long and stay long.

Why am I mentioning this?  Because I was browsing quite a few message boards and all along this decline it seemed there were quite a few that were jumping in UNCO during this waterfall like decline.  The chart to the left does not show most current prices.  But right now as I write this UNCO is trading near .008 and has gone sub penny again.  The decline has clearly been relentless since the very large sign of strength rallies we saw in late May.

So What is the Lesson here if any?

The ‘lesson’ if you will is that UNCO NEVER clearly activated a buy point during this long retracement phase.  A buy point would have been a price closing with good volume above that pink colored down trendline.  But UNCO was never able to accomplish that and gave no reason for traders to go long.  I am calling this a ‘lesson’ because what I have found is that even in pinksheet and otcbb penny stocks, one can still manage risk and use buy triggers like you would on any other type of stock.

It is a false myth that technical analysis does not work on OTCBB and pinksheet penny stocks. I disagree completely.  That is not to say that applying technical analysis can be somewhat challenging on these types of stocks sometimes.  It can be.  Sometimes the charts are very spotty in terms of volume and the signals can be very hard to read without careful enough analysis.

If UNCO really was to be a strong momentum stock then around June 8th to 15th it should have held more sideways price action and accomplished a breakout above the downtrend resistance line. But it did not do that, so it was time to look elsewhere.

These stocks that do these slow tiny declines day after day can be very deceiving.  They seem to call out to us to buy them, and their slow daily decline does not cause too much alarm.  But they are still dangerous and again, they need to show us a CONFIDENT signal (ie. breaking out above the pink down trendline) before they warrant taking any kind of trading risk for a long position.

I have been watching GRDO for some time now and I suspect that it may be building up to a breakout of sorts.  The chart pattern as of this writing looks constructive to me and there may also actually be a pattern similarity to another stock I had on my watch list with symbol BEHL.  BEHL had a big breakout the last two days and I suspect we may see the same with GRDO. GRDO does have some more work to do price wise.  Perhaps another 2 or 3 weeks will be enough to build a breakout. It could happen sooner and the first indication will be that GRDO price is able to break up above the last 2 weeks trading range.

If you look at the chart to the left which shows GRDO on the top portion of the chart and BEHL on the bottom part of the chart there is a tendency towards a general pattern similarity.

I have drawn the red arrows indicating some of the major general moves on these two penny stocks.  In each case we did see at first a nice rally of about 1 month and a half in duration which then peaked and led to a slow and extended selloff.

But then new demand came in then price was able to rally back to the top of the trading range in BEHL where it eventually led to a big breakout as was seen today.  So in essence what we had in BEHL was a first price attempt at the top of the range and then two more attempts and a final successful breakout.

The pattern in GRDO is similar in the sense that now we are near the top of the range again and trading sideways similar to the way BEHL did just before it broke out.

The overall theme here is that if price fails to take out the previous lows, then it will turn around and attempt to take out the previous highs.  We could be near that stage now with GRDO.

Of course all of this could be invalidated if price does not remain constructive in GRDO the next couple of weeks.

GRDO happens to be in the business of identity theft protection.  Clearly this is a huge potential market and also judging from the success of LifeLock a very profitable one.  LifeLock is basically an insurance company, and I suspect a very cash rich business.  I think lifelock is growing at about 25% per month and does north of 100 million in revenues per year.

So clearly we have a very big opportunity here. It is that kind of ‘pie in the sky’ potential that tends to light a fire under some of these penny stocks sometimes.  Lets see if GRDO can build some more momentum from this new identity theft biz wave.

Guard Dog Inc., a penny stock which trades on the pink sheets may be setting up for a breakout later this year.  I cannot tell you that this is the perfect setup or that it has aspects that make it look like a potential blockbuster trade, but at least for the moment this penny stock looks like it has some good things going for it. Lets look at the chart shall we?

There are a couple things that catch my eye on the GRDO penny stock chart.  For starters we see that GRDO had an initial rally way back from the lows in January 2009. This was a pretty decent rally with pretty good volume and showed us the first sign that GRDO is a stock that is capable of getting a rally going showing a decent sign of strength.

After that GRDO went into a long sell off until the mid May time frame, but significantly it was NOT able to break the initial lows set way back in January of 2009.  So basically we can call this a successful retest or double bottom of sorts.  This is a simple point but still quite a significant one since the stock has shown us that it still has some gusto left to make a new attempt at the old highs.  If we were dealing with a dead stock, then GRDO would have fallen below support on the retest and then just kept flat lining in a slow spiral of death.

But that did not happen.

Instead we find ourselves with a new rally now with respectable volume. The classic definition of an uptrend.  The rally, while somewhat choppy has taken us into previous resistance, but still has been keeping support on the uptrendline (drawn in white).

One of the greatest secrets that I have learned about stock price movements whether they are penny stocks or big cap stocks or forex pairs or commodity futures is this. When a stock fails to take out the previous lows, then it will in most cases turn around in the other direction and try to take out the previous highs.  Think of it like a tiger in a cage at the zoo. He cant get out from the right side of the cage, so he turns around and paces back to the other side of the cage and tries to get out there. If he can’t do that then he will turn around again and try to get out from the right side of the cage again. Maybe this is not the best analogy, but you get the point.

PRICE has a life of its own and will act like any other natural force, even in the penny stock marketplace.

So GRDO did the price test of previous support and now is oscillating back up to the top of the range, or at least one would hope so.  That scenario is only valid as long as GRDO is able to hold the short term white up trend line. That remains to be seen, but so far at least it looks constructive.

Incidentally this entire price chart pattern structure that you see in the chart above is at least SOMEWHAT similar to the price pattern structure that EESO had before it shot up to .05 from sub penny range. I am not saying that GRDO is going to do the same thing as EESO, but I can tell you that if GRDO keeps this uptrend going and then gets above that top range resistance level of .004 to .005 range, it could set up a very big move up maybe similar to what EESO did, but that sort of speculation is way too early to do right now.

For now lets see how this minor uptrend holds, or not.

Inca Designs is one penny stock that has had an extraordinary run. I have been watching it for over a month now.  Unfortunately I was not able to catch it in time for the breakout that it recently did. I really thought that IDGI would consolidate sideways for a longer while.

Anyway, the price chart of IDGI is still interesting. But it does have a few challenges ahead that must be meet in order for the bullish case to stay intact. The funny thing about penny stocks is despite the fact that they are so cheap, they still for the most part obey the rules of technical analysis and price and volume relationships.

So what I see right now with Inca Designs is the first blockbuster move from the lows of .0001 area to the red dotted line that marks the .007 level.  That was a big move but then IDGI went into a sideways trading range building cause for the next move. It was not able to break out of the trading range until about 3 months later.  The breakout looks valid in terms of the nice 3 wide price bars, but the volume on the breakout is a bit of a concern to me at this point.  We did under 10 million shares on the breakout.  If you compare that to some of the previous price swings in either March or April you can see just by eyeing it that we are really lacking suitable breakout volume. What you want to see is volume on a breakout that is at least equal to or greater than previous swing volumes.

The other thing to always watch for on breakouts from this type of pattern is a retest of the breakout area.  That is about as common as motherhood and apple pie.  So far we can see that IDGI has fit the bill in that aspect and has now come back down to retest the breakout area and it has been on very light volume which is a good sign.

So it is critical in my opinion that we hold above .007 here in order for IDGI to maintain its up trending ways.  It is quite possible after this retest that we will bounce back up to the .015 area again and then start building another long sideways trading range similar to what happened in March through May.

Aside from the light volume breakout, IDGI is a pretty well behaving penny stock which a lot of the time is a rare thing.  Finding a very well behaved penny stock is really tough these days.

I think I am going to start a new trend here and start to rate the penny stocks that I profile here with a numbering system. 1 will define the absolute most perfect penny stock setup that has ever existed in the history of manking. And 10 will define the absolute worst penny stock setup.  Obviously 5 is going to be right in the middle and make it a 50/50 type setup. So I am going to rate IDGI a ‘3’ right now and think we have a good shot at a testing move back up to .015 which would be a 100% move.

Unico Mining is an OTC BB penny stock that in late May had quite a substantial rally. It was a very powerful rally and I would be so bold as to call that rally a huge sign of strength.  That is what price the nature of the price movement is telling me and it cannot be ignored.

On the popular message boards there is some talk about how this company is a total scam and that the management has time and time again ‘duped’ investors with a dog and pony show only to come up empty with any real results. According to these burned investors, Unico goes through this cycle of pumping up a stock maybe doing some insider buying and then not delivering anything of substantial value in the way of gold production or real concrete progress on their deer trail mine.

If I had a penny for every time I heard the story about how such and such penny stock is a scam, then I would be a very …… (you fill in the blank).

Look, I just do not know if UNCO is just another penny gold mining company that is big on promises but short on results.  That is, I do not know from the fundamental side if that is the case.

But what I do know from the UNCO charting side is that right now we have a fairly good scenario whereby the price of UNCO is at a key decision point and traders and investors have to decide if we have the real deal here or just smoke and mirrors.

The chart is the only thing that matters to me here. I cannot worry about all the other gossip about whether or not they are doing legit business practices and whether or not they will start producing gold in July 2009.

The price chart as you can see in the chart above is at a key juncture and I am going to be watching it very closely tomorrow morning.

If UNCO by the end of the day tomorrow or the other two days of this week is able to get a closing price above that white down trend line shown in the chart above then it could trigger an elliott wave 3 up or new rally in this stock.

On the other hand, if UNCO is not able to achieve that and breaks below .015, then it would invalidate the bullish case, at least temporarily (it could be a false downside shakeout) and open the door to more weakness in price.

So lets let the price decide here what the verdict is. I will be watching this one closely tomorrow and the rest of this week to see if we have any potential here.

I have been trading penny stocks for a number of years now and quite a few sub penny stocks as well. So the question comes up many times, “ How on earth do you spot big penny stock moves BEFORE they actually happen? The hardest part of trading is trying to catch big moves before they happen and then go along for the ride. The other hard part is staying on for the ride until its maturity instead of jumping out too early. Now don’t get me wrong, there is absolutely nothing wrong with taking a profit in penny stock land, but in this business it certainly does not hurt to maximize profits considering how difficult it is to keep them over the long term.

If we look at the chart of EESO enzyme Environmental Solutions we can clearly see that way back in April of 2008 there was a huge move that saw EESO skyrocket. Then this sub penny stock went into a long selloff that eventually bottomed in December of 2008. The reason why I brought up the move that occurred in April of 2008 is that I usually like to see penny stocks already show me based on their past history that they are able to move. It is great to see a previous sign of strength in a penny stock because it shows you what it is capable off and that it might do it again. Plus it gives you a frame of reference with which to gauge possible future action.

Anyway after this long sell off from that high we see that the EESO penny stock based out for over 6 months! These basing periods are extremely important in penny stocks and they can reveal all sorts of valuable clues for future price action!!! This is a very important point and is worth repeating many times. The more analysis you do in the basing out period the more you stand a chance of identifying a real winner as opposed to a complete dud.

The clever observer would have studied this basing pattern on a log chart and noticed that there was accumulation going on. More importantly one can identify a very valuable price chart pattern on this sub penny stock. A head and shoulders bottom formation! You can clearly see this pattern as a left shoulder, then a head in the middle and then the right shoulder. The neckline has an upward slope to it which gives it an extra bullish indication.

As price began to advance above the neckline you could see the increasing volume and then the breakout volume. The pattern was then confirmed and thereafter we say an absolutely HUGE move!

I was not fortunate enough to have gotten any of this penny stock EESO before the big move. To those that did, congrats. This was a superb play and had some outstanding signals before the move. It is crucial to look at penny stocks on log based charts other wise you would not have been able to identify the head and shoulders bottom formation.

But what about holding on for the duration of the breakout? The clue that you need to hold for a while on the breakout was the LENGTH of the head and shoulders bottom formation. We had 6 months of sideways CAUSE. That kind of cause is what makes for an extended breakout type run. So we had some perfect ingredients this penny stock.

Now if you see a similar pattern forming like the one above, PLEASE DO let me know about it! I will examine it closely and see if I give it a green light!