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Terrestar (NASDAQ:TSTR) Satellite Flying High, Stock Is Not

|Includes: Terrestar Corp (TSTRQ)

Will functioning satellite-based broadband be enough to save this penny stock?

As cool as the TerreStar Corporation (NASDAQ:TSTR) terreStar-1 satellite is - in concept - I just can't get past the nasty feeling about this penny stock. While the satellite is getting positioned to provide broadband Internet connectivity from outer space, I think the stock is getting positioned to disappoint a lot of investors.

The company's done nothing wrong. In fact, Terrestar has done exactly what they said they would... which is put a satellite into orbit that can deliver voice, data and video broadband services to properly-equipped handhelds and smart phones. The next step is to actually get the service up and running.

My concern is that the stock has stumbled following each milestone; the rallies happened in front of the actual event.

For instance, the satellite launched on July 1st, and over the next few days, this penny stock fell from $1.58 to $1.02 (on a closing basis). Terrestar announced on the 14th that the satellite had been properly positioned, and shares fell from $1.29 to $1.23.

I know, I know.... buy the rumor, sell the news. This is one of those cases that should supersede the old Wall Street axiom though.... it's pretty much the only thing Terrestar's got going, but it's also what could be a winning lottery ticket.

The one thing current owners have going for them is the lack of volume (so far) we've seen on the selling side. On the other hand, the buying volume was very weak during last week's rebound.

I'm wondering if the market's starting to ask the same questions I was asking back on June 30th..... (1) what's the actual market size, (2) can customers afford it, and (3) will it work?

The answers - as I understand them - are (1) we don't know, (2) yes (business and government customers don't worry about price), and (3) yes the technology works.

There's no room for error though. If I'm wrong about numbers 1 and/or 3, then TSTR could be a disaster. There's no in between. Plus, there just seems like a lot of things that could go wrong in the several dozen miles between where the satellite is and where the company's customers are. Maybe the market is waking up to the risks. Or, maybe the market is waking up to the fact that SkyTerra Communications Inc. (OTC:SKYT) is getting close to doing the exact same thing.

So, here's how I'd play it....

There's something of a head-and-shoulderish pattern setting up here. The neckline is right around $1.00 (and rising). If it breaks, I'll look for this penny stock to go through a meltdown, all the way to the 50 cent-ish area.

As for resistance, the $1.39 area seems to be a significant level. That's where the 20 day average is, that was the midpoint of June's big gap, and it's been support as well as resistance within the last month, If TSTR can break through that ceiling, then we could see a nice speculative move.

Like I said though, the market's been acting kind of funny with this one, and not in a good way.

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