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Blog : Tips for Gaining Penny Stock Infamy
by John Whitefoot on January 11th, 2008
Last Wednesday I heard on the news that, as predicted, oil hit $100 a barrel. Never out of step, gas stations quickly joined the oil-broke-$100 bandwagon and raised their prices considerably.
Now, I know we’re a culture that lives off sound bites and headlines, but if we took time to investigate things, we’d soon realize that not everything is as it seems.
Oil didn’t hit $100 a barrel because of new global tensions or an immediate oil shortage. No, a lone trader out to enjoy his 15 minutes of fame made the purchase that took oil prices to the historic $100 a barrel level.
“The magic figure was hit apparently on the back of a single trade, rumored to be a local intent on fame,” noted one analyst on the record breaking deal.
The trader offered $100,000 for 1,000 barrels of oil, producing the much over-hyped $100 per barrel – which subsequently sparked anguish across the financial markets.
He of course later sold the oil for slightly below $100, taking a $600 loss. But his name will live on. Just not in this article.
While prices surpassed the $100 per barrel mark on January 2, they are still shy of the inflation adjusted peak of $101.70 per barrel reached in April 1980. But even that mark is just a matter of time.
Sadly I had to get gas on Friday. I asked the person behind the counter why gas had gone up so drastically overnight. “Oil prices hit $100 a barrel,” I was informed. I jokingly mentioned that it was one lone trader who pushed it up seeking a little fame. “If only that were true,” he said.
Really, it does sound too odd a story to be true. One lone trader, seeking a little infamy, spooks the global financial markets by pushing oil up to $100 a barrel.
And it’s not that $100 a barrel is anything significant on its own. But, because we are a society that likes to work in base 10s - $100 becomes the magic number to fear. If we were a culture that liked to operate on a base 12 system, than maybe $108 would be the magic number. The point is…$100 is just a psychological barrier.
It also illustrates that one person can make a difference, for better or worse. And those not acquainted with the situation can overreact or even profit from the situation.
If you just read the headlines and do not get the full story, you could be prone to dramatizing the situation; thinking you need to jump in ahead of the herd. This is especially true with penny stocks.
Because a lot of penny stocks are thinly traded, it doesn’t take much to make the share prices surge higher or plummet at the drop of a hat. And it might just be a good idea to find out why the share price is reacting the way it is.
You might think this is common sense. But it's not.
Don’t chase a penny stock higher; chances are you’ll be throwing away any chances of future profits. It's more common for a penny stocks share price to retrace from profit taking than it is to continue its sky rocketing pace. That tends to be the rule for most stocks come to think of it.
And you don’t really want to dump your penny stock simply because its price is giving up some ground. Penny stocks are prone to periods of volatility. A one day range of 5% to 10% is not uncommon for some penny stocks.
Again, with penny stocks, volume tends to be lighter. So it only takes one or two people anxious to get in or out to drastically impact the company’s share price. Your objective is to not overreact. Find out what’s going on and act accordingly.
Had you jumped in and purchased a barrel of oil along with the renegade trader last week at $100 you may already be kicking yourself. On Thursday, January 10, oil prices fell below $94 as worries about slower U.S. economic growth could dampen global demand for crude.
Strangely, gas prices have not yet fallen in suit.