Trading Hot Penny Stocks Using Seasonal Charts

One of my friends is an expert in finding the best penny stocks. He tells me that penny stock investing is probably the most shady, deceitful area of the investment field but if you're sharp and can handle the lack of liquidity and are good at market timing, you can make a lot of money with hot penny stock picks if you start off with a list of the best penny stocks to begin with for your watch list. The money is weeding the winners from the losers, buying low, and waiting.

Time after time he's told me he has visited companies and found that they were outright hustlers simply trying to promote an empty penny stock for a "pop," so you really have to do a lot of background research to find the best penny stocks to trade and stay away from the garbage. A big part of the game is learning how to smell a rat and avoiding those shares like the plague.

He said that his comments on the penny stock trading forums got him pretty well known because he was the only one doing actual investigational analysis, and his analysis could at times move shares tens of percent because of his accumulated reputation for analysis. The biggest complaint to me, he said, was that he saw the ugly side of human nature in this area of investing, and so after many years of investigational analysis he was tired of it and wanted out. That's what he kept emphasizing: "I kept seeing the the ugly side of human nature" but he wouldn't go too much into it because of the moral pain he had been through from his countless investigations. An honest guy ...

When I asked him if he ever found any good stocks in this bunch, in February 2009 he told me of a company called ONCY that he said passed his criteria for the rare real deal, so we're going to use ONCY as a case study for how to use the Factor Seasonal program for trading penny stocks. I sent him a video on Feb 21 analyzing the seasonal prices and showing him what I'm about to show you, which is a seasonal chart analysis for when it was normally the safest time to buy these shares. That's the whole point of this article … if you want to trade penny stocks, use some seasonal analysis or even cycles software to possibly help yourself pick safer entry points.

Now I'm not telling you to buy or advising you to buy ONCY, nor am I recommending this stock in any way or promising you it will follow this pattern in the future or that you will make money. The story on ONCY is over a long time ago. Please see our legal disclaimers that we are not an investment advisor nor are we making a solicitation to buy or sell shares or promising profits or repeatable situations or even the accuracy of our sort of analysis from historical results. No one can do that and we go overboard telling you we don't do that nor guarantee profits or the future profitability of any method described based on past track records. I am simply showing you how you can use our seasonal analysis program to help you analyze penny stocks. It is strange that every other sentence we have to make a SEC- FTC legal disclaimer but that's the business today.

Furthermore, I want you to know that I am not urging you to get into penny stocks either. I'm just going to use this true story as a case study to show you how you can use our Factor Seasonal software, that comes with our Seasonal Cash Flow Trader package, to analyze hot penny stocks and possibly improve your chances with trading. A more powerful version of our software is what we use to produce our newsletters, but since we don't cover penny stocks you'd have to get this software that comes with our Seasonal Cash Flow Trader package and then simply use it on your list of interest.

If I was a penny stock investor, this is exactly what I would do. You're now going to see how I would technically analyze shares for a longer term investment play, buy them near a seasonal low, and then wait for a bull market to "lift all boats," hoping that my penny stocks rose with the general tide. The rule to use to get out is any modification of the general Ben Graham exit rule that I found in one of his old interviews, which is:

Sell when stock increases 50% ... 2 years pass ... the company gets bought ... or the stock splits.

When you start with a good list of penny stocks (from applying fundamental analysis to your list) before you subject them to seasonal analysis for technical market timing, you are putting better odds in your favor for getting in safe. So you might subscribe to penny stock alerts, lists, newsletters or whatever to have them first filter the shares as to bad, good, best but as my friend warned, even then caveat emptor (buyer beware).

Buying and Selling Penny Stocks

Remember that penny stocks are typically "thin" stocks with very little volume so their prices are usually very volatile and often moved by shady promoters.

If you're on the right side of that move, you might make a lot of money if you don't let emotions rule you and you get out when it's appropriate. William O'Neill had a rule to sell a stock after any sudden and rapid climb of 20-25% or more in 1-2 weeks because that pop generally happened when good news or publicity caused investors to become too emotionally enthusiastic about the stock and it was reaching a climax. He had 35 rules for profit-taking, and the basic idea was to sell into strength. You'll have to come up with your own percentage-exit criteria for the penny stocks, and all I can suggest is to watch the seasonals to help. I like to use trend change signals on top of seasonals to get me out of profitable positions bu tthis Graham 50% rule is pretty good, especially combined with seasonals. A lot of people buy penny stocks and have a profitable position, but they hold it too long until it turns against them.

Penny stocks are usually "speculations" rather than "investments," though in good times they usually follow the general upward buoyancy of the market, and a sharp trader or patient investor might make a killing now and then on the right shares. With penny stocks a typical strategy is trying to first screen for a list of good shares ("awesome penny stocks") and then buy some near a yearly low and then ride them for a bullish mood in the market, or bullish penny stock awakening. You have to combine both fundamental and technical analysis to make this work.

So back to our story ...

Based on his recommendation, in February 2009 I ran the seasonal program after he mentioned the company and get this chart for ONCY. Despite his recommendation, I said to myself "I'm not going in right now no mater how great someone says it is, nor how much it starts moving. With situations like this, I want to get in at a near low on a good share and WAIT and that's in the summer, so I'll wait until then." Penny stock investing is similar to value investing in that you often have to buy and wait and wait to buy.

I never did get in on this stock, so I can't use this as a success story. I was too busy with other things at the time and forgot about the shares, but let's see how the forecast turned out. Here's the rest of the story...

Hence, now you see just one random case (warts and all -- we don't curve fit or cherry pick these stories and the newsletters have dozens of strikingly accurate forecast lines too) how to use our Factor Seasonal software to trade penny stocks. Unless you are playing news and emotional pops, I showed you the patient, value analysis method of penny stock investing, which requires that you must be patient when you get in to secure a good price that is hopefully near a seasonal low. A Ben Graham rule, William O'Neill rule or some other criteria such as seasonals would also help you determine when to get out. Liquidity is a big factor, so drive careful.

No one else computes these seasonal charts to provide you with the expected trends, and so no one else is able to find turning points in the market for you like we do. Penny stocks, value stocks, momentum stocks, relative strength stocks ... you can use seasonal charts to your advantage in all these types of investments, including options. Do you want to buy, sell, sell short, trade in options, go market neutral ... once you see the charts you'll understand how they'll revolutionize your trading and investing. It's sort of silly after you see them work to not check them before you do anything, especially the Factor Seasonals. It's not as simple as computing a simple price seasonal and using it or everyone would be a millionaire, and that's why we have some secret sauce formulas for our analysis to tell us what years to use in the computations and when to even ignore the forecasts.

Remember, with enough stock history you can pull apart and really see whether inflation or interest rates or any other economic condition/environment really has an effect on stock prices (you can create what we call a "Factor Seasonal" chart that deconstructs out the annual behavior of a stock under different economic environmental factors) and this can help in the initial investment decision in the first place. This is critical if lots of money is at stake. Mutual funds should be doing this every day because it's so dang valuable.

There's no reason as a penny stock trader to just jump in and buy a stock because of the story or momentum without first looking at all the timing indications and influences revealed by a variety of factor seasonal charts.

Once you have a variety of factor seasonal information and see that stock prices are closely following the pattern of a particular factor seasonal when it's in that market environment, you have a key to profits that we deliver to you on a monthly basis. All our forecasts of price projections are adaptive, meaning they change every month as new price information comes in. We're sure we'll create these forward charts better than you, which is why we bother to publish a newsletter for subscribers. And when many of these various seasonals (price seasonals, economic seasonals, and political seasonals) all line up with the same conclusion -- that's what we report to you to use in for your investment decision making.