Saturday, April 2, 2011

Learn About Penny Stock, It Is Important To Buy The Rumour , But Sell The Undeniable Fact

By Robert Von Hobbes

Ever thought about why a penny stock falls acutely in price shortly after it achieves a significant milestone? You have potentially seen corporations drop noticeably in price on the heels of an FDA clearance, robust monetary results, or gaining a much expected patent grant.

Sirius Radio is one penny stock that comes to mind, with it's shares dropping over ninety percent since they were ultimately given approval to combine with XM, after fighting for it for 2 years. You can find out more about the increase and fall of Sirius at our blog entry, Satellite Radio's Swan Song.

There's an expression in the stock market that claims, "buy the rumour, sell the fact." The concept is easy. When there's an excellent rumour about an impending event for a corporation backers buy in, therefore pushing penny stock share prices higher. Once the event itself is really realized, the share price loses that upward purchasing pressure, and the penny stock drops in value.

As an example, ABC Inc. Is probably going to get FDA approval for their new drug. The upcoming governing is widely anticipated, and many financiers buy in, speculating the statement will send the shares skyward. This starts pushing the penny stocks ' price up.

Once the basically FDA approval is officially granted, the shares don't spike way higher since the backers had already run the share price up so much. Now the statement is out, many of these same backers start cashing out, putting a lot of selling force on the stock.

The following events are a few examples of what might drive purchasing interest :

*Imminent patent award

*Predicted powerful monetary results

*New major buyer or contract win that's widely expected

*Impending release of a fresh version of their technology

*Expected FDA clearance

Any such widely forecasted event would continuously push share costs higher. The penny stock would steadily increase, higher and higher, till the base event ultimately came to pass. Then hopeful purchasing burns, sellers come out of the woodwork, and shares start their descent.

For this effect to basically happen, the rumour or event should be :

*Well known

*Growing in chance

*Notable ( potential for a significant impact )

*Nearing the date it's anticipated to happen

"Buy the rumour, sell the fact," plays out continuously on the markets. It's definitely not the exception, but instead the rule. Keeping this under consideration will help you to identify penny stocks that can trend upward, permitting you to ride the shares up for profits. Just be sure to escape your position before they come crashing back level-headed, and more practical valuations. In other words, buy the rumour, sell the plain fact.

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