3 Ugly Microcap Charts
Basic charting can help you pinpoint the perfect time to buy a stock.
More importantly, a stock chart can show you when you should sell a bad investment.
Over the past several weeks, I’ve shown you some charting techniques that you can add to your fundamental toolbox to improve your investing returns. My reasoning is simple: three minutes of work can save you from making a mistake that would potentially cost you thousands of dollars.
Today, I’m going to review a few of the hundreds stock tickers you’ve sent in this week. I’ll then tell you whether I would buy or sell the stock in question.
Let’s get to your letters…
What’s your opinion on Biosante Pharmaceuticals Inc. (NASDAQ:BPAX)?
— R.M.
Here’s a daily chart for Biosante:
Here we have a development-stage biotech that’s taken a big hit over the past few months. Shares have dropped from a high of $7 in February to just $2 last month. The $2 mark appears to be providing short-term support at the moment. But I wouldn’t fully trust the stock — even at these low prices.
Take a look at the failed bounces (blue arrows). The stock attempted two massive rallies off its lows recently. Both were met with ferocious selling. The long lines on the upper section of the candlesticks show that during each of the rallies, sellers knocked this stock lower as it approached $3.50. The stock was never able to close above that mark.
I would sell this stock. The trend could continue lower, pushing shares below $2.
Great Wall Builders Ltd. (OTC:GWBU) is heavily promoted right now… They claim this stock will go to $10 per share soon. What are your thoughts?
— J.B.
Well, you wrote that GWBU is heavily promoted right now. That should be all the information you need…
When dealing with promoted stocks, you will almost always see outrageously high “price targets” published by unnamed analysts. I have yet to see a promoted stock that has ever met or exceeded the target, let alone one that has come close. GWBU would be the stock of the century if it could jump from $1.60 to $10 this month. I sincerely doubt it will ever break $3, let alone $10. Avoid this stock at any price.
I’m down 73% on American Liberty Petroleum Corp. (OTC:OREO) … Should I hold and hope the price goes higher, or should I sell?
— N.C.
OREO appears to be a pump and dump that has run its course. Unless a new promotion is in the works (which we have no way of knowing about in advance) then this stock is probably dead in the water. If you’re going to attempt to trade promoted microcaps, you should be setting strict stop losses to avoid potential disasters.
Hope can be a dangerous emotion in the stock trading world. It can cause you to hold on to a losing position for much longer than you should. Take a step back and look at your losses. Come to terms with the bad trade, sell the stock, and move on to other opportunities. Training yourself to make cold, rational decisions will help your trading immensely. Remember, every trader takes losses. The best traders simply take smaller losses — because they know when to walk away from a bad trade.
Thinking About Buying Stocks?
Don’t even think about buying a stock before I have a chance to rate it! Send all of your tickers, charts and questions to editor@pennysleuth.com.
Sincerely,
Greg Guenthner
for The Penny Sleuth
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Greg Guenthner
Greg Guenthner, CMT, is the co-editor of STORM Signals and Penny Stock Fortunes. He is also the editor of Agora Financial’s Trend Playbook, a free resource for trend followers and technical traders. For close to a decade, Greg has led Agora Financial’s small-cap division, where he founded one of one of the only independent OTC research advisories in the industry. Greg specializes is classical trading techniques and combines timing strategies with his fundamental analysis of small-cap stocks.
He is a member of the Market Technicians Association and hold the Chartered Market Technician designation.
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