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How It Really Works

I’ve been watching- Watching for two factors to come together. They’ve come together, and it’s time to make some money.

First, I’ve been watching for the market to shake off its obsession with every little move out of Europe. I suspect the issues in Europe are going to take some time to solve, and I’m not even sure if the resolution will be favorable for world markets. I know the ECU is putting its best foot forward, but the politicians are getting in the way. Sanity will prevail.

So, as the loud noise out of Europe quiets a bit, markets are coming back, and penny stocks are starting to rip to the upside. I’ve been reluctant to do much of late since the last two of my famous “Sunday” ideas were down slightly, but now I believe it’s time to get engaged and busy again.

As my long term readers know, I pride myself on having the pole position on these ideas- you learn about them before anyone.

Here’s a inside scoop for you. The best penny stocks trade significant volume because there are very robust “awareness” campaigns put in place. The typical penny stock investor watches a stock run up 25% to 40% on big volume, then greed gets the better of that investor, and he (or she) finally jumps in at the top, only to watch as the stock peaks in a day or two, and heads back down. This is the investor who ends up “holding the burning match” down to his fingers.

I pride myself on getting you in ahead of the crowd. Very often this pays off for us- here’s a list:

• AAST (6/6): 73%
• GCLL (8/25): 118%
• TKDN (9/12): 31%
• AAGC (9/13): 26%
• IPRC (4/17): 61%

Being first doesn’t always pay off to the upside, but it always helps protect your downside risk. Here’s the scoop.

When a penny stock gets hot and starts trading huge volume, it becomes what pros call a “Crowded Trade”. As the stock works its way higher, the greed factor kicks in, and buyers all get on the same crowded trade at the same time.

However, eventually the stock peaks, and everyone tries to get off the moving train at the same time. The result is a train wreck. Here’s a chart of a recent highly promoted and great trading stock- for a time.

RAYS has been on every penny stock trader’s radar screen for the last 3 weeks. As you can see, the stock started trading up in Mid October, and moved from about $1.20 to a high of $2.50 in a month.

Look what happened to the stock when every investors tried to get out the door of that speeding train all at once. The stock traded down below its starting point in one day on huge volume.

Here’s the point. If someone didn’t advise you to get in RAYS in the first few days, unless you were really nimble, you got killed in this one.

When I deliver you a Sunday idea, it’s at the front end, and you’re the first to know the stock that millions will learn about in the coming weeks.

It’s worked very well for us in the past as you can see from the list above. However, you might not realize what really works about this strategy. You have downside protection. You’re in before the train gets crowded, and therefore if the stock trades the other way, it won’t be a violent crash and you can get out with a minimal loss.

This requires you to have discipline and stick to my SSLs (suggested stop loss). If you have a brokerage account that won’t allow you to file a stop loss the moment you trade into a stock, get a different brokerage firm.

I use eTrade.com, and I have no problem filing conditional orders for everything I own. Now- a little preview of this week’s coming attraction.

Oil Is Back!!!

In case you haven’t noticed, world markets are shaking off the mega fears of the August/September madness, and there’s a kind of stealth bull market going on in global equities. It’s not a raging bull, but there’s a perception economies are definitely getting better.

There’s no better indicator of the perception economies are coming back than the price of oil. The implication is strong economies need more oil.

Have you looked at a chart of oil lately?

This is the Goldman Sachs Oil index. If you want to know what the market really believes about the health of the global economy, watch this index. It is probably the best leading indicator of the perception of global financial health, and the price of oil is super sensitive to perception of global supply and demand.

As you can see, oil has been climbing steadily and rapidly since the big blow off in mid October.

I’ve put the 50 Day (blue) and 200 Day (red) moving averages in the chart. The level of this index is above both of those measures, suggesting oil is in both a short and long term up trend.

It will be volatile as the market over reacts to the news out of Europe. However, this is not a chart that reflects some sort of massive global slow down. This is a chart that suggests demand will be growing faster that supply in the oil patch.

That’s why I believe it’s time to look at some micro cap domestic oil ideas again. The sector did extremely well last spring and into the summer, and I expect the market will start embracing the nimble, smaller, oil exploration and production companies once again.

Here’s the big news- A new Sunday idea fell into my lap, and you’ll learn about it tomorrow. No one knows about this company yet, and you’ll have the pole position out in front of a major awareness campaign.

Our last big winner in this sector was Imperial Resources (IPRC)- introduced at $.49, IPRC delivered a 61% gain.

Perhaps we have another of those on the horizon. Stay tuned for tomorrow’s new idea.

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