Well, I’m glad I prepared you for red market days yesterday because it was ugly for all the major indexes.
But one of the best multi-day runners over the last week didn’t fail because of the over markets…
It failed because it’s at the end of the penny stock lifecycle.
As I said recently, it looks a little different than it used to…
But penny stock companies are still playing the same game — and it always ends the same.
So here’s why this stock’s failure was imminent and what you can expect from most stocks that have a 1,332% gain in one week…
How The Penny Stock Life Cycle Plays Out
Penny stocks have a life cycle.
It used to look like this…
The pump would only last a few days before the stock would fade off into nothingness…
As day traders, we’d aim to take a piece of the move on the way up … Then the stock is dead to us.
But now penny stocks are holding up way longer thanks to over-aggressive short sellers…
They’ve even started shorting penny stocks under $1, making the penny stock lifecycle last longer.
But eventually, the end of the life cycle comes…
Why Penny Stocks Fail
Penny stock companies are in business for one reason — to sell stock.
Most of them have no fundamentals, income, product, or staff…
The stock is the product.
Without real products or income, they need constant news and hype to maintain higher prices.
Or they need to trap early, aggressive shorts to create a giant short squeeze.
Femasys Inc. (NASDAQ: FEMY) played the game well and did both…
The company put out a press release after hours on September 25 about its infertility treatment solution. And that kicked off the stock’s big gap up the next day…
Then, after the stock had a red day, the company put out another press release to spike the stock again.
This time the press release was about expanding its FemBloc pivotal trial enrollment.
That sent the stock higher and squeezed some shorts…
But not all of them got out fast enough.
The stubborn ones held on and got squeezed for two more days as the stock climbed all the way up to $4.75!
FEMY chart: 3-month, daily candle — courtesy of StocksToTrade.com
Then what happened to create a 35% drop yesterday?
The last phase of the penny stock lifecycle … The company did an offering to raise $16,700,000.
When a stock has a massive run-up due to hype press releases and massive short squeezes — the company will take advantage of it.
Whether that means insiders dump shares or the company dilutes shares with an offering…
Penny stocks all end up back where they started.
And this is the end of the penny stock life cycle.
Then it starts all over again.
The company will do a reverse split to reduce the number of shares in the float to raise its stock price, and put out a press release to send the stock soaring…
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Then it’ll drop an offering and dilute shares again.
So trade these stocks for what they are.
They’re junk stocks that run on big headlines. And the best trade opportunities happen when you’re the first one to spot news and trends.
In trading, that means you need great timing.
You’ve gotta know the patterns and be ready when a stock is poised for a big squeeze.
And you’ve gotta know when to bail before the company dumps shares on you.
The best way to do that is to stay on top of breaking news with StocksToTrade’s Breaking News Chat…
The Breaking News Chat team alerts hot catalysts with the potential to spike stock.
It also announces news of offerings that you might not find anywhere else…
They alerted the FEMY offering yesterday a minute before the open, which kept a lot of traders safe.
If you want to stay on top of hot stocks and market trends, get my Market Update videos three times per week here.
You can also join my FREE live training sessions. I cover…
📈 Hot stocks to watch
📈 Patterns to look for
📈 And show you the tools to help you find and trade hot penny stocks
Register for free here and I’ll see you at the next one!
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade