The $0.60 Penny Stock Rule

The $0.60 Penny Stock Rule

I see a lot of patterns in the market to identify trades.  Some of these patterns I NEVER hear anyone talking about.

The one rule that I see appearing over and over again that no one talks about is the $0.60 penny stock rule.   It is very simple.   $0.60 to $0.70 for any stock is a MASSIVE WALL of resistance.  I don’t know why.  I don’t make the rules.  I just point them out.   So how does this rule work? 

This is how I think it works.  Psychologically an investor will go way out on the risk curve for leverage. Why?  Simply because most will buy based on the fact that small movements produce big gains and at $0.60 the leverage that a ‘penny stock’ offers is lost.  So why is this important?  Simple.  For a penny stock to move up and approach $1… psychologically the investment must be seen as more legitimate by the investor and a ‘sure bet’ vs. a riskier stock bought sub $0.30.   This psychological tug of war between risk and reward plays out huge in this area.

So how do you trade it or know when confirmation happens? 

Well nothing is certain in life... but generally $0.60 to $0.70 acts as any normal support resistance band.   $0.60 is an ultimate wall for many stocks to get past and if it does generally you like to see price action move quickly to $0.70.   Those stocks usually have very strong momentum and the breakout can happen all within a few hours.  When ARU first announced results the company pushed past this mark easily and you knew to jump in.  (Well at the time I didn’t know, but after watching stock after stock perform the same way) you get a good idea.  ARU was the first ticker to really jump on my screen like that but not the last.   NOT-V did a textbook run as well and broke through another key penny land support resistance channel at $0.30 to $0.40.  HAT-V did the SAME thing when they announced acquiring Roughrider initially and ran all the way to $1.50 within weeks.  As you probably know the history with all three stocks if you at all have followed my blogs over the years… ALL WENT ON EPIC multi-dollar runs.

Usually the companies will make their way to $1 at least for a trade.  Sometimes the company doesn’t have that firepower and huge volume days and the signal isn’t as easy.   What tends to happen is it hits a second resistance at $0.70 and tries to forma base at $0.60 using it as support.  If the SP cannot hold $0.60 support, the SP will fall back significantly for a better entry point.  In both cases the stocks are moving and following a trendline which you can use in conjunction with horizontal support to pick the best entry points.   Examples of this are OPL-V back in December failing to maintain $0.60 and now KLH-V failing to maintain $0.60.  OPL-V is trying to maintain $0.60 and this mark may or may not hold… but even if it doesn’t… the base it’s built under $0.60 is looking like a good entry point.   The time of year is not the best so you have to be cautious opening up any bullish trades in March.



Another point to remember is I only use these bands as a BUY signal for momentum.  They do act as support for beaten up stocks like WRN and LIM but are not as accurate at predicting continuation in price action.    You do not want to own any stock that breaks support at $1 as they move well below that mark.



One final point…  This $0.60 cent mark can be used as a sell signal too.  If you own a penny stock from $0.20 or $0.30…  a stock that does not even break $0.60 moving up that significantly or trade a couple of days above… WILL MATERIALLY FALL BACK OFF $0.60. 

Is this type of price action time and time again.

From now on… just call me 60 cent.