Blog : Unemployment Means Penny Stock Profits

October 5th, 2009

With employment figures, we're looking down the barrel of a gun. We've seen 21 straight quarters of job losses, which puts us face to face with the greatest unemployment since 1983.

After becoming a penny stock, GM went bankrupt. Several of the nation's biggest banks collapsed. The stock markets have taken a beating... until recently, that is. You see, there's two sides to every story.

There are several indicators that are foretelling a strong performance from the stock market, and well-positioned penny stock investors stand to benefit as they ride this momentum.

It was actually months ago that the stock market became fully "saturated" with bad news, to the point where negative outcomes and operational results were expected. Good news was shrugged off, both in blue chip stocks, and penny stocks as well.

Yet, investors should think of that dark time as an investment. All the negative headlines, bad corporate news, sinking share prices, and capitulation ensured that the downside was nearly fully factored into share prices.

These were times when penny stock investors enjoyed some rare company from so-called "blue chip" investments, as the likes of Ford, Citi, and other big-name corporations joined the ranks of the sub-$5 penny stock world.

It became a situation of "being closer to the bottom than the top," with limited downside (as the majority of the negative news was factored in), and great upside for any investors who would fight their fears and jump back into the markets, whether that be with large caps or penny stocks.

You can read more articles from Peter Leeds about this topic.

Employment figures are a lagging indicator of economic strength. This means that people won't start getting jobs again until after we're already well into a full recovery, sometimes delayed by as much as 12 months.

On the other hand, the stock market is a leading indicator. It will start recovering months before the economy. You may have seen much of this happening in the very recent months with penny stocks, and many of the larger stock market investments as well.

From a short term technical perspective, a lot of sectors are currently oversold, on the heels of a couple losing weeks for many industry groups, involving companies among penny stocks and large caps alike.

This results in the inevitable return of buying activity. Sellers have tired themselves out, and in exiting their positions have made bargains for investors waiting to get back in.

On the sidelines, there is a lot of institutional money, and these dollars (billions) are starting to move back in. They are looking for good values in shares, but more and more of them are doing it all at once, making the supply of shares harder to come by in contrast to the growing demand. The results in higher share prices.

The safe haven over the last few years has been commodities, specifically gold, while others chose the poorly performing US dollar. Both of these venues are becoming less attractive, and fear among investors is subsiding in lock-step, making traders turn their sites towards equities.

The overall return of greed, and the fading of fear, are bullish signs for the markets.

Investor sentiment is mildly negative, and being a contrarian indicator, this bodes well for the possibility of a coming bull market, in penny stocks and blue-chips alike.

Thus, when you hear the doom-and-gloom employment reports, take it with a grain of salt. The numbers will be weak, and may continue to get worse, but that doesn't mean we're heading down hill economically, or as penny stock investors. In fact, there are a lot of factors pointing to great upside, and a recovery of employment will be dragged along with the economy, months after we've seen some great gains.

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Blog : Unemployment Means Penny Stock Profits