Trading/ Investing in "Penny" Stem Cell Stocks 101

A lot of stock market traders and investors have recently entered into the Stem Cell sector because it is still undervalued and happens to be one of the few places right now where you can actually make money online. Because the vast majority of these stocks are $5.00/share or less with quite a few being less than $0.25/share, many people are venturing into the "penny stock" world for the first time. As a result, I decided to put together seven key concepts to remember when dealing specifically with Penny Stem Cell Stocks:

1. Penny Stem Cell Stocks Don't Trade Like Other Penny Stocks.

Let's not sugar coat it, most penny stocks are strictly pump and dumps. However, most of the penny stem cells stocks provide two things that typical penny stocks don't: legitimate reasoning for continued price appreciation and consistent volume.

2. These Stocks Are Volatile, But the Volatility Is Somewhat Controlled.

Most of the volatility in penny stem cell stocks is a function of extremely low prices and overall market uncertainty. Although the daily swings can be wild, a weekly or monthly chart quickly reveals a trading pattern that more so rivals stocks at $5 or $10 per share. As long as the outlook is not too short or long, these stocks have proven to be just as stable as any other stock in a market like this.

3. Curb Your Enthusiasm.

People kill me with stocks hovering around a penny or less with price targets of $1.00/share. I guess anything is possible, but that simply isn't very realistic. Pick reasonable price targets.

4. Curb Your Disgust.

A stock doesn't need to be axed because of one or two bad trading days. It's a penny stock so, as I stated earlier, expect volatility. If a stock can achieve 20% daily gains, don't be surprised to see 20% the other way at times. As long as there continues to be catalyst for upward movement, don't let a couple of downward swings discourage you.

5. Understand Standard Penny Stock Price Points.

$0.01, $0.025, $0.05, $0.10, and $0.25
These numbers represent psychological points of resistance. Stocks that develop a base at less than a penny tend to eventually hit a penny once it begins to run. Stocks that form a base at $0.01 often hit $0.025 (and so on and so forth). Just keep this in mind when determining entrance and exit points.

6. 100,000 Share Block Transactions - Institutional Buying?

100,000 share blocks does not necessarily represent the presence of institutional buying or selling. A $500 to $1000 transaction (which is what this represents) is as about as retail as they come. In other words don't get caught up in multi-million share volume. It's really not that much money relatively speaking.

7. Understand the Truth about Forums/Message Boards.

For the most part, message boards should be seen as nothing more than entertainment and marketing platforms. Often times the comments here are wild and completely off base. Also, reading them everyday can really be a drag. It's not that difficult to distinguish the bashers and pumpers, yet many still fall prey to their ridiculous manipulations of the truth. However, a board can occasionally be a decent place to get ideas and sometimes a "nugget" is dropped. In the likelihood that this should happen, you should always follow up with your own due diligence to check for accuracy (something that should constantly be done anyway if you own a stock). It also helps to understand what you get from different message boards. Here's my take on some of the more popular ones:

- Yahoo Finance: Basher heavy particularly on a down day; Pumper heavy on good days
- Google Finance: Quite a few bashers and pumpers, but not as bad as Yahoo
- Investor Village: Pretty good blend of bashers, pumpers, and sound advice
- Ihub: Mostly pumpers

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Stem Cell Stocks 2/17/09 - 2/18/09

Thanks to a lots of media coverage from the Stem Cell Summit to begin the week on Tuesday, 2/17/09, Stem Cell Stocks got off to a blazing start. However, most of the gains were lost the following day due to news of a child fatality cause by the experimental treatment of neural stem cells. There was a swing of double digit gains on Tuesday to double digit losses on Wednesday. So, the week thus far has basically been a wash. Some will say that this has been a wild week. I'd say it's par for the course. Stocks of note are as follows:

Cord Blood America Inc.(CBAI.OB) = Current Price: $0.0104; Down -26% to begin the week. After showing lots of strength last week by remaining flat, the dumping has been pretty heavy due to false rumors of share dilution. $0.01/share has shown to have very strong support. CBAI.OB may not make up the deficit in the next two trading days, but I'd expect a strong finish to end the week.

Geron Corp (GERN) = Current Price = $5.74; Down -10% to begin the week. It still seems to be on its downward slide, but I really feel it stops here. On the bright side from a technical standpoint, the stock has almost completely "closed the gap" from its price prior to 1/23/09. This usually means the shorts will cover their positions and the slow steady rise that started in November should resume.

7 comments:

  1. Card,

    Excellent, helpful posts. Especially appreciate the list of sites for checking commentary. I was unaware of two of them.

    Also nicely balanced commentary on CBAI and GERON. I'm long in both.

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  2. Thanks dhippe! I appreciate your kind comments. I'll do my best to keep it going.

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