These Charts Tell Us NOW Is The Time To Buy Penny Stocks

| November 3, 2014 | 0 Comments

market diceIs Now The Time To Buy Penny Stocks?

In just the last few weeks, the stock market has given us a big signal.  It’s saying now’s the time to buy penny stocks!

I’ve dug up two charts for you to look at… and believe me when you see them, you’ll be convinced now’s the time to strike.

So here we go.

Since April of this year, we’ve seen something really interesting in the markets.

We’ve seen a natural divergence in the market between large cap stocks and small cap stocks.

Here, look at this chart.

RUT vs SPX

The chart above tracks the percentage change in the S&P 500 (that’s the black line) and the Russell 2000 (the red line).

As you probably know, the Russell 2000 is made up of the smaller stocks on the market.  It’s a good proxy for small cap and penny stocks.

As you can see, in April of this year, the market started to come apart… while the large cap stocks held their own, the smaller stocks broke down.

As you can see by the 15th of October, large cap stocks were flat… while the small cap penny stock knocked off over 8.5% of their value!

This is a reason to SELL penny stocks…. right?

What this chart tells me… is starting in April, institutions were losing confidence in smaller stocks.  So the money managers sold the small stocks.  They sold them more aggressively than the big stocks they held.

It’s called a rotational shift.

Remember, money managers are always trying to predict the markets and they rotate into and out of different asset classes in a heartbeat…

But when you see a long drawn-out rotation, it means something is afoot.

The Signal Giving Us A Reason To Buy Penny Stocks…

So just based on the chart above, you’d think now would be the time to SELL your penny stocks and hide out in the bigger names…

But if you did that, you’d be wrong.

Here’s why… just take a look at chart #2.

RUT vs SPX

It’s the same as the first chart… the S&P 500 is in black and the Russell 2000 is in red.

But now you’ll see something different…

In the last three weeks, we’ve seen the trend reverse.  Money is now flowing into the smaller names faster than the big companies.

In the last three weeks, we’ve seen the S&P 500 jump 5.6%… but the SMALL stocks have almost DOUBLED that return… they’re up 11.1%.

Is this the start of a new long term trend?

Only time will tell…

But my money is on the idea that big investors sold off the small cap stocks through the summer, expecting them to crumble in the second half of 2014.

When the market stayed solid, the big institutions realized the current market run might have stronger legs than many think.  As a result, they are now re-deploying huge amounts of capital into small companies and penny stocks.

It tells me now is the time to start picking up shares of the best penny stocks out there!

Profitably Yours,

Penny Stock Research

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Category: Investing in Penny Stocks

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