Category Archives: Speculative Observation

Observations of Penny Stocks–Viable Strategy

Posted on October 24, 2021 by | Leave a comment

Is there a sensible way to speculate in penny stocks? We examined an approach to reduce risk while increasing success in penny stocks.

Our approach starts with a list of Nasdaq companies that have regained listing compliance by meeting the $1.00 minimum bid price requirement. We obtained this information through Google Search, company press releases, or Nasdaq press releases. The time frame for this assessment is from 2019-2020. Keep in mind that 2020 experienced one of the largest declines and rebound.

The first table shows a summary of the result broken down by various time frame. The second table contains individual stock detail.

Speculation in Penny Stocks Summary

The average rate of return, for this frame, was around 100% if we purchase and hold for approximately 9-12 months. Most of the gained came occurred in 2020.

Results based on individual holdings varied widely. To highlight the key to success, we can look at Seanergy Maritime Holdings (SHIP) which lost virtually all its value (-97%) and Kopin Corp (KOPN) which gained 575% in one year. An equally weighted purchase of these 2 companies would have produced exceptional results.

The reason this strategy can lead to a profitable trades is driven mainly by the lopsided risk and reward profile. While some stocks lost nearly all their value, others gained more than +100%. While success rates (positive return) hover around +50%, the uneven profile of risk reward makes this strategy viable.

Although the duration of this study was limited to 2 years, which include down and up cycle, we conclude that this strategy is a viable way to identify and possibly speculate in penny stocks. However, the key to success is diversification and one must purchase and hold as many stocks as possible over the studied timeframe.

Reference:

Leave a comment

Posted in pennies, penny stocks, speculation, Speculation Observation, speculative, Speculative Observation

Kellogg (K) Observation

Posted on March 25, 2021 by | Leave a comment

Kellogg (K) stock peaked at $72 in July 2020. Since then, the stock has fallen to $57 (-20%) in 2021. The underperformance put the stock on our radar in January 2021 (yellow arrow). Stock has been trading in range since and appears to be breaking out of that range today. Such action is bullish to a technician or chart readers. Fundamentally, the stock is undervalued based on our 10-year target. The two forces, fundamental & technical, appears to be in alignment with one another. It will be good to revisit Kellogg after 6 months or a year to review how this situation turn out.

Kellogg 2021.03.25

Leave a comment

Posted in investment observation, Speculation Observation, Speculative Observation

Green Mountain Coffee Roasters: On Target

Posted on August 6, 2015 by | Leave a comment

On May 19, 2015, we did a downside review of Green Mountain Coffee Roasters (GMCR) based on the work of Edson Gould.  At the time, GMCR was trading at $88.69.  Our downside assessment was as follows:

“As can be seen above, the price of GMCR has declined below the conservative and mid-range downside targets of $110.08 and $81.40.  The acceleration of the current decline seems to indicate that achieving the $52.71 extreme downside target is very likely.”

On August 6, 2015, GMCR declined as low as $52.40.  This falls well within the indications that were provided by Gould’s Speed Resistance Lines [SRL] at $52.71.  We closed our downside assessment of GMCR with the following comment:

“The fact that GMCR is prone to extreme moves up and down suggests that the extreme downside target is the point at which to start assessing risk and accumulating shares.”

Now that GMCR has fallen below the extreme downside target of $52.71, we think now is the time to review GMCR as a going concern for a potential transaction.

The Setup

Assuming that an investor is willing to accept total loss of funds, now is a great time to review the fundamentals of GMCR and determine if it will survive on its own or ultimately get acquired.  Below is the updated SRL based on the work of Edson Gould.

image

Our best guess is that buying GMCR in three stages on the way down is the most “prudent” approach.  For those interested in the stock but don’t like the prospect of catching a falling knife, we’ve outlined three potential starting points for investment at $40.66, $31.33 and $23.04.  We’d suggest investments of 50%, 25% and 25% of allotted funds.

Again, this recommendation is not for the faint of heart.  Additionally, it is safest to assume all money put to this stock are a total loss and requires a significant amount of due diligence before any commitment is made.  From a historical standpoint, a  retest of the prior low ($17.25) is not unusual.

Leave a comment

Posted in Edson Gould, GMCR, Speculative Observation, speed resistance line, SRL

Sell Electronic Arts (ERTS) at the Market

Posted on March 18, 2010 by | Leave a comment
It is now time to recommend that Electronic Arts (ERTS) be sold at the market. The stock has performed moderately since the Speculative Observation was issued on January 11, 2010 as it now trades at $18.51.  Since our Speculative Observation, ERTS has increased 10.69%. In the pursuit of "seeking fair profits" the returns that Electronic Arts (ERTS) has provided within the last 67 days say that it is necessary to consider alternative opportunities. The key to investment success and a key principle of economics is to seek the best alternatives.

From a technical standpoint, Electronic Arts (ERTS) appears to be trying to go above the $18.66 resistance level.  If the stock can break above $18.66 and remain at that level, the stock should make an assault on the $21 price range.  However, with an annualized return on this position of nearly 58%, we are content taking 10% and letting everyone else enjoy the remaining upside prospects.
As we have indicated in the purposes and function of this site, our goal is to:
  • maximize the annual yield of each trade.
  • reduce time between buying and selling of each stock.
  • exceed the annual yield of government guaranteed alternatives in each trade.
Investment and Speculative Observations are intended to be a starting point for investigating a quality company at a reasonable price. It is hoped that after doing the background research you can buy the stock at a lower price. Ideally the stock should be held in a tax deferred account and should not consist of less than 20% of your holdings. Personally, we prefer holding only 2-3 stocks at a time.
Sell recommendations are intended to deal with the short term reality of the market. The tracking of the Sell recommendations are the worst case scenario if you happen to have bought a stock at the time the Speculative Observation was made (please avoid making this mistake.) We aim for mediocrity in our returns, therefore we are happy with 9-12% annual gains. However, since codifying this approach to investing in 2005, we have had annual returns of 20% and above every year since.
It is always recommended that when selling a stock, one should not place stop orders, limit orders or orders after hours. This leaves the seller in the position of being vulnerable to the whims of the market makers. Instead, place your sell orders only as a market order during market hours. Some would complain that a market order during market hours might leave some profits on the table. However, we would rather leave some money on the table rather than have it taken away from us by the trades that are placed by institutions and market makers.
-Touc

Leave a comment

Posted in erts, Sell Recommendations, Speculative Observation

Tagged

Sell Cephalon (CEPH) at the Market

Posted on March 2, 2010 by | Leave a comment
It is now time to recommend that Cephalon (CEPH) be sold at the market. The stock has performed moderately since the Speculative Observation was issued on January 4, 2010. However, CEPH has performed well since our Speculative Observation of August 27th and October 8th of 2009. Since our original Observations, CEPH has provided many opportunities to buy the stock low with the better than even prospect of selling high.
Since our October 8th reiteration of CEPH, the stock has risen 31% to the current market price of $70.78. However, if we go by the last observation on January 4, 2010, CEPH has increased 13.41%. In the pursuit of "seeking fair profits" the returns that CEPH has provided within the last 61 days say that it is necessary to consider alternative opportunities. The key to investment success and a key principle of economics is to seek the best alternatives.
CEPH was re-recommended when it closed at $62.42 on January 4, 2010. As of March 2, 2010, CEPH was quoted at $70.78. Again, CEPH has gained 13.41% since the beginning of the year. The annualized return on this position would be close to 80%. Since it is unlikely that the stock can continue to climb unabated, we feel selling now is a reasonable policy.
Those not interested in following through with our sell recommendation can feel comfortable knowing that CEPH is a great long-term holding with a 13.41% downside cushion since our last investment observation. As the price of CEPH rises, it should be noted that the stock faces significant upside resistance at $70 and $80. We are going to continue watching this company to determine if the stock will meet our prior 3 month targets based on the Coppock Curve and other technical indicators.
As we have indicated in the purposes and function of this site, our goal is to:
  • maximize the annual yield of each trade.
  • reduce time between buying and selling of each stock.
  • exceed the annual yield of government guaranteed alternatives in each trade.
Investment observations are intended to be a starting point for investigating a quality company at a reasonable price. It is hoped that after doing the background research you can buy the stock at a lower price. Ideally the stock should be held in a tax deferred account and should not consist of less than 20% of your holdings. Personally, we prefer holding only 2-3 stocks at a time.
Sell recommendations are intended to deal with the short term reality of the market. The tracking of the Sell recommendations are the worst case scenario if you happen to have bought a stock at the time the Speculative Observation was made (please avoid making this mistake.) We aim for mediocrity in our returns, therefore we are happy with 9-12% annual gains. However, since codifying this approach to investing in 2005, we have had annual returns of 20% and above every year since.
It is always recommended that when selling a stock, one should not place stop orders, limit orders or orders after hours. This leaves the seller in the position of being vulnerable to the whims of the market makers. Instead, place your sell orders only as a market order during market hours. Some would complain that a market order during market hours might leave some profits on the table. However, we would rather leave some money on the table rather than have it taken away from us by the trades that are placed by institutions and market makers.
-Touc

Leave a comment

Posted in CEPH, Sell Recommendations, Speculative Observation

Tagged

Sell Mattson Technology (MTSN) at the Market

Posted on January 6, 2010 by | Leave a comment
In our previous write up on Mattson Technology (MTSN) on October 22nd, we warned readers that this position was not for the faint of heart. As if to prove our point, MTSN promptly fell from the $2.65 level at the time of the recommendation all the way down to the level of $1.94 on November 4, 2009, a decline of nearly 27% in two weeks.

Now, with the stock trading at $3.32 and with a gain of 24% in 77 days, we think that it is time to relieve ourselves of this highly speculative position. With the understanding that any investment that exceeds a return of 13% within one year is exceptional, we feel that MTSN is getting long in the tooth. Additionally, if viewed from a technical standpoint, MTSN has formed a topping out pattern over the last couple of weeks. -Touc

related article:

Leave a comment

Posted in Mattson Technology, MTSN, sell recommena, Speculative Observation

Tagged

Sell Monsanto (MON) at the Market

Posted on December 9, 2009 by | Leave a comment
Again, it is just our luck that Monsanto (MON) has done exactly what we had anticipated. On October 30th we issued a Speculation Observation which indicated that MON should be considered for short term gains. However, our upside target price was around $76, in this regard we were woefully incorrect.

MON has managed to climb to the level of $83.38 as of December 9th. Anyone who was bold enough to take our observation to heart would have a 22% gain on their hands. It is strongly recommend that a mental trailing stop is instituted to ensure retention of the gains. Personally, we would sell the stock and wait for new opportunities. Touc.

Leave a comment

Posted in MON, Monsanto, Speculative Observation

Tagged