Regarding small-caps and low-float stocks, the market works in cycles. Traders often experience lull periods of hard-to-come-by movers with impressive volume and range. On the other hand, there are periods in the cycle where traders might think that everything will surge 100 to 500% higher. We’re in the latter right now, it seems.
Last week, a remarkable number of penny stocks experienced a surge in volume and price not seen for several years. Everywhere you looked, it seemed like there was a stock trading at $5 that previously closed at $1.
If you are a new trader, this action could overwhelm you and significantly increase risk. For example, a trader might see a stock up 300% on no news and think it is short, only to surge another 200% higher. Traders looking to participate in this cycle must prioritize risk management and establish a firm edge and system.
But are the moves in these penny stocks sustainable, and do these companies present an opportunity on a higher time frame, such as an investment?
Let’s look at three of the biggest movers from last week to gain a better perspective.
Secoo Holding Limited, based in Beijing, China, operates an online and offline shopping platform in China, Hong Kong, and worldwide. It offers upscale brand products and services, including fashion items and electronics. It also serves as a marketplace for third-party merchants to sell luxury goods.
SECO’s average volume is just 2 million shares. However, last Thursday, the stock traded almost 80 million shares and saw its share price rocket to nearly $3 after closing the previous day near $0.30.
There was no news or catalyst behind the stock’s surge, and as a result, it was unsurprisingly short-lived. After topping out in the high $2’s on Thursday, SECO faded back to close the day out near $1 and the following day near $0.60.
Tempest Therapeutics, Inc. is a clinical-stage oncology company based in Brisbane, California. They focus on developing small molecule therapeutics that utilize both tumor-targeted and immune-mediated approaches to treat a variety of tumors.
Last Wednesday, Tempest Therapeutics saw a remarkable 4,000% increase in its stock after releasing positive Phase 1/2 data for TPST-1120 in treating liver cancer. However, two days after the higher surge, the stock crashed by almost 70% before bouncing back on Monday. Year-to-date, the stock is up nearly 500%, and over the last month, almost 1,300%.
Judging by the daily 30 - 50% moves in either direction, the market is yet to price the stock fairly, and a battle between shorts and longs is yet to have a clear winner.
OpGen, Inc., based in Rockville, Maryland, is a precision medicine company that develops and sells molecular microbiology solutions worldwide. Their product portfolio includes in vitro diagnostic tests for bacterial nucleic acids and antimicrobial resistance, SARS-CoV-2 test kits, and technology platforms. They collaborate with healthcare institutions to combat infectious diseases and multidrug-resistant infections.
Last Thursday, shares of OPGN surged almost 1000% higher after announcing news and a company update, although not fundamentally changing. After trading to nearly $4 in the morning, having previously closed near $0.30, the stock topped out and gave back the lion's share of its gains, closing the day near $0.90.
Should You Invest in the Penny Stock Mania?
One-word answer: no. As you know, penny stocks and small-cap stocks are inherently riskier than established blue-chip stocks and dividend aristocrats due to their smaller market capitalization, limited resources, and higher volatility.
Yes, they offer the potential for substantial gains but have a greater risk of losses, making them better suited for speculative investors comfortable with uncertainty and market fluctuations.