How to Approach a Penny Stock

Begin by looking at the chart for the entire history of the stock and reverse engineer.

  • What caused the price-per-share (PPS) to spike in the past?
  • Was is a news item?
  • Was it an SEC filing?
  • Did the “bag holders” buying into an upside over-reaction dump in a fashion characteristic of tax loss selling or harvesting?
  • Did the PPS recover in January in a fashion characteristic of “the January effect?”

Narrow your focus to key event periods and closely examine the PPS and volume reaction.

This is what I do in THE CANNABIS REPORT.  In the absence of evidence to the contrary, assume that what has occurred in the past will occur in the future.  And, in almost all cases, avoid holding during a reverse split.  The only exception is a reverse merger occurring before any indication of a reverse split.

3 thoughts on “How to Approach a Penny Stock

  1. I enjoy your work, Sir.
    Strategy question: What if one bought, let’s say, 20K of PHOT, holding it as LT now (after the events in the past two years) allowing for a reverse split upcoming. Let’s say it is a 10:1 reverse. Now there are 2K shares. Would the stock price increase per share now?
    Thanks, Jerry

    Like

  2. Hi, Jerry:
    Generally speaking, an event date is provided for the reverse split and the stock closes, the reverse split occurs, and the opening PPS is post-reverse split (RS). So, let’s say $1.00 PPS at close on date of 10:1 RS. Opens at $10.00 PPS and trades. Market determines what happens. Hope this helps. AJ

    Liked by 1 person

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