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.

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.