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chris8sirhc
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I am a full time penny stock trader specializing in tracking mass marketing campaigns that increase investor awareness in the OTCBB market. I also trade weekly options on major stocks. I am also a full time MBA student at Clemson University.
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  • Macro-pennystock-onomics 6 comments
    Mar 4, 2013 4:25 PM | about stocks: REDG

    It is a well known fact that penny stock investor awareness campaigns have been around for a very long time, but it has been quite a few years since this sector of the market has been this strong. Normally you only see large percent runners on millions of dollars in volume once in a blue moon, but we have had at least 6 such campaigns in the last month or two: Green Innovations (OTCQB:GNIN), Echo Automotive (OTCPK:ECAU), Swingplane Ventures (OTCPK:SWVI), US Tungsten (OTCPK:USTU), Southern USA Resources (OTC:SUSA), and Pterosonic Energy (OTCQB:PSON). Of course, now we have a new one beginning, (OTCPK:REDG) from the Victory Mark group. This unprecedented string of successful campaigns begs one to wonder where all of this sector strength came from, and if it can be predicted in the future. In this article we will discuss the main factors that drive the penny stock investor awareness campaign sector on the macro scale in both a multi year basis and an intra-year basis. Before we dive into the details, be sure to check out the charts, they speak for themselves:

    GNIN by the Brighton Markets group(click to enlarge)GNIN pump chart

    ECAU by the Paragon Report/Bedford group with a Chuck Hughes hard mailer(click to enlarge)ECAU pump chart

    SWVI by the AwesomePennyStocks group (click to enlarge)SWVI pump chart

    USTU by a hard mailer campaign (click to enlarge)USTU pump chart

    SUSA by a hard mailer campaign (click to enlarge)

    PSON by a hard mailer campaign (click to enlarge)

    If those are not impressive, I don't know what is. What caused this massive sector strength, and can we predict something like this in the future? There are many known factors that control the stock market as a whole that we could look at, but most of them have little or no correlation to this sector. Based on veteran penny stock trader Tim Sykes book, An American Hedge Fund, the last time this sector showed this much strength was during the last major bull run starting after the tech bubble and ending with the housing crisis in late 2008. Today the SPY is closing in on all time highs, and the penny stock investor awareness campaign sector is on fire again. It seems safe to say that there is some correlation between a strong bull market and how well this sector does on a multi year basis.

    Now, even within this year, there was a timespan when pumps went nowhere but down for the most part. How could that be if we were still in a bull market then? This same slump tends to happen around the same time every year, its called summertime. The main factor that actually drives the penny market is how much extra spending money people have available to them. This translates well to the multiyear theory since in a strong bull market people should be bringing home more money.

    I could be wrong, but as far as I know, most 401k's will not allow you to invest your money into penny stocks, and on top of that a persons 401k will not fluctuate much within one year. The money people put into penny stocks touted by investor awareness campaigns has to come from somewhere, and if it isn't a persons retirement fund, it must come from their extra money on hand.

    Every year around this time (January, February, March) there are numerous investor awareness campaigns that do incredibly well. The best from last year at this time was (SNPK). It just so happens that this time of the year is when people begin to get, or expect to get, their tax returns. Tax return season is the only time of the year when the aggregate of America will have a significant amount of extra spending money available to them. Here is an interesting statistic:

    "the Internal Revenue Services says for fiscal 2011 it issued individual tax refunds for $337 billion. Nearly 120 million individual taxpayers got refunds that year, which averages to about $2,800 per person.

    That check is the largest single lump sum of money the average American family receives in a typical year, according to an estimate by the American Tax and Financial Center at TurboTax."

    In addition, over 55% of the population expects to receive a tax refund, according to budgeting.about.com/b/2012/03/22/most-americans-expecting-a-tax-refund.htm

    The extra spending money factor will also explain why penny stock investor awareness campaigns tend to do so poorly during the summer. Due to the school systems schedule, and the weather, most people take their vacations during the summer. Vacations usually involve travel, lodging, and food, which is not free, so during the summer we see an aggregate decrease in extra spending money, which translates into a poor performing penny stock market.

    So, there you have it. The two main driving factors in the macro penny stock market are the overall investor sentiment which dictates how much people on average will take risks, and the amount of extra money people have on hand to invest. It will be very interesting to see if Victory Mark can continue this string of successful campaigns with REDG, or if they cannot compete anymore, and REDG flops.

    One word of caution though, most penny stock investor awareness campaigns involve one large shareholder who is selling many of the shares during the campaign, and if they sell too quickly, the stock will not go up, even during the perfect storm of tax refund season during a bull market which we have going on right now. In addition, penny stock awareness campaigns significantly increase investor attention on a stock, and when the campaigns end, which they always do, the stock price goes crashing down.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OTCPK:REDG over the next 72 hours.

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Comments (6)
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  • chris8sirhc
    , contributor
    Comments (4) | Send Message
     
    Author’s reply » in addition, my finance professor pointed out that people who are not in the higher tax brackets are more likely to receive tax refunds. These people are much less likely to be educated in how to properly evaluate companies, have a professional broker looking out for them, and are more apt to bite at lottery type opportunities.
    7 Mar 2013, 06:13 AM Reply Like
  • Whipflakes
    , contributor
    Comments (17) | Send Message
     
    Thanks for the article. I just bought into REDG this morning after standing on the sidelines the past 2 days watching it shoot up. In your opinion - what is a safe sell point assuming this is a successful campaign? Maybe 65 cents?
    7 Mar 2013, 06:20 AM Reply Like
  • The_SEC_Already_Knows
    , contributor
    Comments (11) | Send Message
     
    Chris, nice blog.

     

    Have a few comments and hope you take them constructively.

     

    1. I'd find someone other than Mr. Sykes to worship and/emulate.
    He likes to lead young men astray.

     

    2.The majority of victims (bagholders) in penny stock land tend to be either very young/inexperienced or retired/close to retired types looking for one big score (yields on traditionally appealing investments to the retiree crowd are very low). Education levels are also low for the typical "bagholder." HS or lower.

     

    3. Spam promos without mailers (preferably hard mailers) do not last very long in duration. Hard to generate interest on low budget campaigns (which spam only ones are).

     

    4. Some discount brokers' 401K plans do permit trading in penny stocks. Know an aged 50 or so victim on the SNPK/PHRG p&d one. $105K el flusho down the toilet.

     

    Signed,

     

    Summa Cum Laude Marshall School of Business
    8 Mar 2013, 01:03 AM Reply Like
  • chris8sirhc
    , contributor
    Comments (4) | Send Message
     
    Author’s reply » 1) I dont worship anybody, and I'm in the process of getting my MBA

     

    2) I agree completely agree, I remember my econ professor talking about how people who are in greater need are more likely to buy lottery tickets even though it is irrational etc, and that fits in well with everything you said and the article/comment.

     

    3)I tried to keep this article specific to the overall marco factors affecting the penny market, im working on a "micro-pennystock-onoi... that will talk about those factors and many more.

     

    4) Yikes, that is sad to hear that some 401ks allow you to invest in penny stock scams. I know when I interviewed at a well known I Bank for a position as a broker, they had to go 3 levels up for approval to buy a penny stock with someones account.
    8 Mar 2013, 07:47 PM Reply Like
  • Michael Goode
    , contributor
    Comments (122) | Send Message
     
    We know that consumers tend to have less money available in January because of having to pay off the credit card bills from Christmas. Yet still January at least the past few years has seemed like a good time for pumps. Last year there was NSRS & SNPK. This would seem to contradict your theory. Also, I would very much like to see how consumer discretionary spending and credit card debt change month-to-month and think that would be interesting data that could support or refute your theory.
    14 Mar 2013, 10:59 AM Reply Like
  • chris8sirhc
    , contributor
    Comments (4) | Send Message
     
    Author’s reply » very interesting point. I knew that they tended to fare worse around December, and I assumed that was due to christmas as well. Off the top of my head I'm not sure how the relationship between christmas credit card debt vs expectations of a tax return actually play out during the month of January. As far as credit cards go, it would be important to find out, like you said, if people actually paid off their cards, or just continued with the minimum monthly payments on average.
    15 Mar 2013, 05:53 AM Reply Like
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