Why The Bull Market Is Great For Penny Stocks

Bullmarket

Thank god for female trading challenge students like Julie!

Be sure to visit Julie’s Blog: http://julieverhage.wordpress.com

The bull market we are currently in brings up some common misconceptions about penny stocks and Tim’s strategy. Many people believe Tim only shorts stocks and that he must be losing money in the bull market. These statements are simply not true. Tim’s students are up more than $6 million through the bull market, with that number continuing to grow every day. Tim does short stocks, but it should be known that bull markets are great for finding blatant pump and dumps to short. In a bull market, promoters are more likely to find companies that want to take advantage of the larger number of people jumping in to stocks and looking for “great investment opportunities.” That means they are willing to pay the promoters more and the pumps will go higher than if it were a bear market. Then, the higher the stock goes, that more it has to fall and the more money there is to be made from shorting the stock. Investors will be looking for stocks that are marketed as undervalued and have strong growth potential. These are things that promoters often portray in their spam emails, generating a large pool of investors in a short amount of time. Once the promotion stops, there will no longer be a large group of new investors. The strength and hype will quickly disappear and the current investors will realize that the company is not nearly as great as the promoters were making it out to be. This creates a sort of panic, meaning investors will sell as soon as possible. Since there will be far more sellers than buyers, the stock will crash at a rapid pace.

As Tim has noted on his blog before, he likes to short into strength. Bull markets create the most strength in some of the worst companies in the world. Two examples Tim has on his blog (Jan 25, 2013) is as follows:

Look at the stock MLER. This company makes flying cars (no, this isn’t a joke). They’ve been promising for years to have contracts and they’ve had press releases galore about “partnerships.” But they’ve yet to have one that hasn’t fallen through. They have never generated a profit, as their expenses are always greater than their revenues. You would think with flying cars they would have to spend a lot on research and development, but they haven’t spent anything on it. Approximately 88% of their expenses, or $1,088,000, in 2012 went to selling general and administrative expense (SG&A). That is compared to a total revenue of $10,000. Not $10,000,000, just $10,000 in revenue. That means they have an SG&A expense that is roughly 108 times their total revenue. Why would anyone EVER buy a company with those type of statistics? Because of promoters! Prior to the bull market, the stock did done nothing but go down in price. But now that it’s a bull market, MLER was just featured on CNN and the stock has doubled. Check out how far the stock went before eventually crashing! The bull market was a perfect set up for this stock. In a bear market, it would have been far more difficult for the promoters and the company to get the needed attention to create this kind of a spike in the stock price.

Another example is PRCP. At least this company isn’t losing money like most pump and dumps. Tim did buy and alert at $6.70 as a 3d printing sympathy play to the sector leaders DDD and SSYS. He sold in the low $7’s since it wasn’t a volatile stock and the company had just switched auditors, meaning there’s some fishy stuff going on accounting-wise. Looking at the chart, you see that it went all the way to the $9’s before crashing back down to $6.

PRCP-buyalert

Tim also likes to buy earnings winners and breakouts. For obvious reasons, these type of trading plays are far easier to find in a bull market. Companies are more likely to have positive earnings surprises and breakout above key technical levels. Tim has done several videos for trading challenge students on how to spot and buy breakouts. These videos are even more beneficial in a bull market. He also wrote a blog post and did a video of how he made $4,000 in 2 minutes buying a breakout during the bull market.

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