A trader friend of mine pointed out INAR to me the other day.  After he first mentioned it I looked at it only briefly and concluded that it needed to do some more work after the initial early August breakout type move on huge volume.   But now I am looking at it a bit closer and this penny stock might have some potential.

It appears clear from looking at the penny stock chart of INAR that the big spike rally in mid May was preliminary demand.  Then we saw a sell off and a retest of the .001 level which INAR was completed successfully.  Price was able to hold the double bottom without breaking down below.

Now we are seeing another attempt at a rally on huge volume.  After the volume and price spike after a week ago INAR has settled down into a small sideways  trading range.

I would really like to see INAR trade and hold sideways for a bit longer without breaking down much at all.  If it can do that then it may have a decent shot back up towards resistance at .008 which I consider to be an ideal exit point.

The fact that INAR failed to break out the lows of .001 on the double bottom retest implies to me now that it wants to take a shot at taking out the .008 range just like a tiger who tries to get out of the right side of his cage, but can’t , then oscillates to the left side of the cage to see if it can get out that way.

Penny stock INAR clearly broke through the blue down trend line on substantial volume and a confirmed price break and sign of strength.

So now it is up to INAR to prove itself and hold sideways as horizontally as possible so it can work off the overbought condition and get some legs for a run at .008.

You can click on the chart of PGCR above to see it full size (note please ignore the x axis monthly dates because they are incorrect, the price is correct but the dates are wrong. It is the only way I could get the data in my charting program).  I still like the way PGCR is trading so far.  It continues to trade sideways now near the longer term triple bottom support area. 

I continue to believe that PGCR could be close to a spike rally north.  If I am wrong then I think the best alternative is to see PGCR trade sideways for a longer period of time. The 13 day moving average has still not crossed above the 50 day moving average but it is awfully close.  Volume has really dried up as of late, but is that surprising in August? 

If PGCR is able to keep trading sideways without breaking below .002 then to me it would be a bullish longer term development because the stock could be building a big base and longer term cause for the eventual move up.  But it is imperative that PGCR is able to hold .002 .  Perhaps the best shot PGCR has for a repeat type super spike rally is the October to January 2009 time frame.  Rest assured I will post here when I see important new developments.

I have said before that I would love to see the gold price spike up and break 1000 sometime in the next month.  In my opinion it would go a long way towards support PGCR’s longer term potentially bullish setup.

PGCR may get an upward spike at any time however and some of the indicators that I follow are telling me that PGCR could spike up as soon as this week.  But please do not take that prediction to the bank. 

PGCR needs to get above .0045 before I can say with more clarity that it has truly finished bottoming.

Placer gold has the clear potential to spike to .01 to .03 cents in a matter of days in my opinion.  But a spike like that may need to be triggered by news which has not been out since June 9th, 2009.

I still feel we are dealing with a powerful setup, but the main risk is that PGCR stays flat for many many months and never really gets a rally going.

With a little luck we will get the gold price to start cooperating so that a public obsession with gold stocks can start .

The penny stock VIPR Industries may be setting up for a move this week.  It is somewhat of a simple setup but could have some juice in it.  Caution is still advised because there is not much sideways cause for VIPR. 

The positives here are the bombshell volume that occurred about 3 days ago on the first spike upwards.  That was on over 100 million shares.  Then the next day retracement downwards was on dramatically lighter volume.  The drop off in volume was substantial and I do not usually see such a dramatic drop off in volume like that after such a big move, especially on penny stocks.  The actual percentage drop off in volume on VIPR was by about 68% which is huge. 

We may have very quality volume here in VIPR.

Then on last Friday price on VIPR starting catching wind again and volume increased substantially to about 67 million shares.  So roughly 60% of the free tradable float could be bought up at this point.

As positive as I am on this penny stock, I am still a bit scared because again we are dealing with a pattern that does not have much sideways cause at all.

You see that red dotted horizontal line? I like how we busted up through there with a sign of strength on the huge volume I talked about earlier.  To me it makes that breakout of that resistance valid.  Then, the next day we pull back to that support line on the dramatically lighter volume already mentioned.

Now it seems VIPR wants to start moving topside again. 

It also looks like a small pennant formation for the last 3 days.

For me to stay positive on VIPR we MUST MUST MUST stay and hold above the .0024 support level.  I would prefer to see it start moving immediately on Monday for me to stay positive on it because it has this shorter term pennant formation.

If VIPR does not get moving very quickly Monday, then this could turn out to be a dead fish.

Oh by the way, VIPR is a gold mining penny stock, just so you know.  I can’t speak to what relevance that has here as it probably does not mean that much at this point.  The main thing with VIPR Industries is that support holds and it gets a move going SOON.  If it doesn’t then it could just start drifting sideways to down and lose its potential.

The penny stock Placer Gold Corp (PGCR) which trades on the pinksheets forms a chart that is worth studying in my opinion.  The chart you see above (click on it to make it full size) is a longer term 2 year daily price chart of PGCR. 

It is worth studying because in my opinion there are some well defined parameters that make for clear cost benefit analysis.  Many penny stock charts that I look at are not so clear.  Typically there is a lot of congestion, noise, lack of price data, and just general confusion in the price chart. Or the price movement has wide swings all over the place and it is difficult to define clear trends or parameters that are worth acting on.

Reason 1

But with PGCR I want to tell you about a few important observations I have made.  For starters, I see long term support at the .002 level.  The .002 level is a significant level and a level that PGCR must hold in order for me to remain open to bullish possibilities.

It was touched 3 separate times in 2008 in what looks like a well defined triple bottom.  After that triple bottom, PGCR was able to get a rally going from .004 to .11 cents in about 1 months time.  That was clearly a huge sign of strength rally that came off of the triple bottom.

Since that time PGCR has drifted down in a seemingly endless price decay back down to the current time frame of August 2009.  But price so far has held above .002 .  I can tell you that I like how price has slowly retraced back down to the support of the triple bottom range.  I have seen this happen before in several other penny stocks and it has the potential to result in a huge snap back reaction rally to the upside. 

The most memorable penny stock that I can remember doing this last was INBG.  It went from .004 to .30 cents in a few days.  But the float was very very tiny on INBG, but still the pattern was similar.  A long slow retest of a previous congestion area.

So clearly .002 is a key level for PGCR.  For me to remain bullish on the longer term time frames, the .002 level must hold.  Another encouraging sign on the recent test of .002 is that we have seen to very large volume spikes (not shown on the chart) off of this level.  I am reading them as accumulation and support off of the bottom of .002.  To me they are an encouraging sign, although admittedly shorter term signs.

Another positive is that the previous mega rally occurred in the December 2008 time frame.  We are coming up on December 2009 in a few months.  It is not a huge point but I have noticed on some occasions that you will sometimes find pattern seasonality trades in certain penny stocks.  PGCR may fall into this category come December 2009.  The other positive about this mega rally is that in general, I like to see penny stocks show me in ADVANCE what they are capable of doing.  It is better for me to see that a penny stock already had a previous super strong rally as an indication that it may happen again.  It is not so favorable to see a penny stock that for the past few years was never really able to get any kind of super strong rally going.

Reason 2

But PGCR is a gold penny stock.  And that is the wild card that could either accelerate this overall pattern in PGCR or change it to something less favorable.  The gold price is trying to get a breakout going now, but it is at the point where it needs to do something soon, otherwise the whole breakout scenario could be in doubt.  I recently wrote a post on a different site that defines some of the near term parameters on the gold price. 

If the gold price can manage to get a breakout going, I would view that as highly favorable for a PGCR renewed upside run.  It may take a while to develop but there is a lot to be said for a massive breakout in the gold price affecting positive sentiment on almost all gold stocks, including the pennies.  The problem is I cannot say for sure if we will get a mega breakout in gold or not by September.  If we do get a mega breakout in the gold price by end of September 2009, then PGCR merits very close watching in my opinion.

There have been examples of previous gold price spikes ( for example the one in 2006) that have caused gold penny stocks to go ballistic to the upside.  I remember there was a bankrupt gold penny stock that was trading at .0001 and it shot up to .15 cents in about 10 trading days.  That occurred during the most bullish up phase of the gold price spike. 

So there are a lot of ‘ifs’ in my comments above.  But they are big ifs and if activated could create a very bullish scenario for PGCR.

Reason 3

As long as PGCR can hold and maintain .002 level then I think there is merit for accumulation for an eventual upside return to 11 cents.

The reason why I am saying 11 cents is because of a simple principle of stock price movement (all stocks, not just penny stocks).  If price fails to take out the previous highs, then it will try to take out the previous lows.  If price then fails to take out the previous lows, then it will try to take out the previous highs.  Rinse wash and repeat.. That is the process of price movement.

PGCR did a triple bottom onto .002 in 2008 and it failed to take out the previous lows.  Then it got a super mega rally into .11 and failed to take out the previous highs.  Then it drifted down to where we are now and I do not know yet if it will be able to take out the previous lows of .002.  BUT IF IT CANNOT then it says to me we will see an eventual run back to .11 to try to take out the previous highs again.

PGCR getting above .0045 is the First Guidepost

If PGCR can get a close above .0045, then it would be in my opinion a first guidepost telling us that a new uptrend can begin.  It might not be a bad idea to set a price notification email alert on PGCR over at CBS Marketwatch or your other favorite stock price alert service.  I would simply set it to trigger an email notification upon a northward break of the .0045 level.

In my opinion that would be a powerful sign that we could see the beginning of a resumed run to .11

I have watched the intra day action on Level II for PGCR and I can tell you based on my observations that the penny stock trades very thin and it can be difficult to acquire a position.  This is both good and bad.  It is good in the sense that when and if real upside volume comes in there is the potential for swift price movement.  It is bad in the sense that it is hard to get a favorable price and can make for difficult risk management.

So in summary, a cooperating bullish gold price, a hold of support at .002 and a price thrust up and over .0045 could all be the ‘perfect storm’ that launches PGCR into another attack on 11 cents.

But before I do that CEMJQ might be worth a quick mention.  If it can hop above .25 and stay above there it may be able to get another run started.  Right now the broad market is going into a pretty nasty correction so I am not sure what effect that will have on CEMJQ as of now.  But so far CEMJQ has held up well. A break below .20 would destroy any chances of a good pop in the near term.  So maybe worth keeping an eye on.

Ok, so now what are the factors that make for the best penny stock setups?

I have been thinking about this for quite some time and I can tell you that there are a couple factors that make for the absolute BEST penny stock setups, but they are exceedingly rare.  They are:

• A penny stock that has had a very large upward move, but then has gone into a long sideways consolidation (perhaps forming a large triangle or a head and shoulders bottom formation).
• The previous point has occurred only AFTER a very long decline in the penny stock (ie. long bear market trend).

The reason why the above two points make for the absolute best penny stock setups is because you are doubling your odds of success.  You have a situation whereby a stock has come down after a long bear market but then has entered a new bull phase and THEN gone into a long sideways consolidation… It is that long sideways consolidation that you must watch like a hawk and determine an entry point because then you will be able to ride up with the next major up trend.

These types of penny stock setups are the most ideal because you can ride the trend up for a month or two knowing in full confidence that you are in a bull phase move of the stock.  You also have plenty of CAUSE built after the initial move and sign of strength.

There are three penny stocks that I can think of that made such moves and all three of them were extremely profitable to those that were able to identify the initial structure and then jump on for the next move.

The symbols for the three are SRSR, GSPG and IDGI. Sarissa Resources, GoldSpring, and Inca Designs.

To the left is a chart of SRSR (Sarissa Resources) just to give you an idea visually of what I mean.  The first long red arrow shows the long previous bear trend I was alluding to above.

Then you see that initial large sign of strength move off of the bottom. But THEN SRSR went into a long sideways consolidation forming a symmetrical triangle.  That price action is the mot valuable because it is just churning and cause building for the next big move.  It gives you plenty of time to prepare for the next move and gives you advance notice of it as well.

You will see plenty of other penny stocks make 100% moves from all sorts of formations, but I have found over time that this general structure is the most powerful and reliable in terms of realizing extended profits.

The problem is you do not find these patterns that often.  So if you ever do see one please let me know so I can share it with other visitors here at penny stocks penny stocks dot com.

The other type of penny stock setup that I like to try to find are the dormant bottom variation where you have a penny stock that has been trading very flat for a long time with only minor rallies and spotty volume.  Preferably it will have a very low number of total outstanding shares and a small float as well.  These can be also very tricky to find and identify because of their low trading volume.

What I like to see with these dormant bottom plays is successively higher price ranges, sort of like a stair case.  When you start to see that off of a flat long base, then keep open to the possibility that you will see a very big move coming.  Certainly volume analysis helps a lot too when trying to confirm their possible success rates.

So far I have not been able to find a good piece of scanning software that is able to identify penny stocks that trade in a long flat base. 

The best real time scanning software I have seen so far for pinksheet and otc bb penny stocks is equity feed.  They may have some scans that help identify long consolidating penny stocks with flat bases but I have just not used the software enough to be able to tell you that it can do that.  But there are definitely good volume and price scans contained within equityfeed.

IDO Security makes a security products for airports, schools, and other venues where forcing people to take their shoes off is too much of an inconvenience.  I did not know this but apparently the complexity of many shoes design, in addition to their thickness prevents normal security scanning techniques to be effective on them.

I really think most people hate taking their shoes off at airports and other locations where there are security zones.  It is just one big hassle, not to mention a little bit embarrassing.

The downside of this penny stock is that the outstanding shares are near 1 billion.  However the chart still does look somewhat promising. Looks like a triple bottom to me and a relatively flat base and now a rally with very strong volume off this base.

It seems a lot of the float is bought up if not all of it already.

A form T was also recently filed indicating that the owner has recently bought a good amount of shares.

So do we have a running penny stock here or not?  Well the volume says so, the long base says so, but we will just have to see.

Given today’s big move I am hard pressed to find another good entry point in IDOI.  Probably the best setup is to wait for the first consolidation to see if it has enough legs to stand on and then maybe find a low risk entry that way.  But chasing a penny stock like this one at the highs is a dangerous game.

But I did just want to mention it for watch list purposes.

I did a post a while back about UNCO and was exploring the possibility that UNCO may be coming into a buy point.

Well now we have some hindsight and clearly it can be said that UNCO never activated a REAL buy point as a signal to go long and stay long.

Why am I mentioning this?  Because I was browsing quite a few message boards and all along this decline it seemed there were quite a few that were jumping in UNCO during this waterfall like decline.  The chart to the left does not show most current prices.  But right now as I write this UNCO is trading near .008 and has gone sub penny again.  The decline has clearly been relentless since the very large sign of strength rallies we saw in late May.

So What is the Lesson here if any?

The ‘lesson’ if you will is that UNCO NEVER clearly activated a buy point during this long retracement phase.  A buy point would have been a price closing with good volume above that pink colored down trendline.  But UNCO was never able to accomplish that and gave no reason for traders to go long.  I am calling this a ‘lesson’ because what I have found is that even in pinksheet and otcbb penny stocks, one can still manage risk and use buy triggers like you would on any other type of stock.

It is a false myth that technical analysis does not work on OTCBB and pinksheet penny stocks. I disagree completely.  That is not to say that applying technical analysis can be somewhat challenging on these types of stocks sometimes.  It can be.  Sometimes the charts are very spotty in terms of volume and the signals can be very hard to read without careful enough analysis.

If UNCO really was to be a strong momentum stock then around June 8th to 15th it should have held more sideways price action and accomplished a breakout above the downtrend resistance line. But it did not do that, so it was time to look elsewhere.

These stocks that do these slow tiny declines day after day can be very deceiving.  They seem to call out to us to buy them, and their slow daily decline does not cause too much alarm.  But they are still dangerous and again, they need to show us a CONFIDENT signal (ie. breaking out above the pink down trendline) before they warrant taking any kind of trading risk for a long position.

If you look at the chart to the left which shows GRDO on the top portion of the chart and BEHL on the bottom part of the chart there is a tendency towards a general pattern similarity.

I have drawn the red arrows indicating some of the major general moves on these two penny stocks.  In each case we did see at first a nice rally of about 1 month and a half in duration which then peaked and led to a slow and extended selloff.

But then new demand came in then price was able to rally back to the top of the trading range in BEHL where it eventually led to a big breakout as was seen today.  So in essence what we had in BEHL was a first price attempt at the top of the range and then two more attempts and a final successful breakout.

The pattern in GRDO is similar in the sense that now we are near the top of the range again and trading sideways similar to the way BEHL did just before it broke out.

The overall theme here is that if price fails to take out the previous lows, then it will turn around and attempt to take out the previous highs.  We could be near that stage now with GRDO.

Of course all of this could be invalidated if price does not remain constructive in GRDO the next couple of weeks.

GRDO happens to be in the business of identity theft protection.  Clearly this is a huge potential market and also judging from the success of LifeLock a very profitable one.  LifeLock is basically an insurance company, and I suspect a very cash rich business.  I think lifelock is growing at about 25% per month and does north of 100 million in revenues per year.

So clearly we have a very big opportunity here. It is that kind of ‘pie in the sky’ potential that tends to light a fire under some of these penny stocks sometimes.  Lets see if GRDO can build some more momentum from this new identity theft biz wave.

There are a couple things that catch my eye on the GRDO penny stock chart.  For starters we see that GRDO had an initial rally way back from the lows in January 2009. This was a pretty decent rally with pretty good volume and showed us the first sign that GRDO is a stock that is capable of getting a rally going showing a decent sign of strength.

After that GRDO went into a long sell off until the mid May time frame, but significantly it was NOT able to break the initial lows set way back in January of 2009.  So basically we can call this a successful retest or double bottom of sorts.  This is a simple point but still quite a significant one since the stock has shown us that it still has some gusto left to make a new attempt at the old highs.  If we were dealing with a dead stock, then GRDO would have fallen below support on the retest and then just kept flat lining in a slow spiral of death.

But that did not happen.

Instead we find ourselves with a new rally now with respectable volume. The classic definition of an uptrend.  The rally, while somewhat choppy has taken us into previous resistance, but still has been keeping support on the uptrendline (drawn in white).

One of the greatest secrets that I have learned about stock price movements whether they are penny stocks or big cap stocks or forex pairs or commodity futures is this. When a stock fails to take out the previous lows, then it will in most cases turn around in the other direction and try to take out the previous highs.  Think of it like a tiger in a cage at the zoo. He cant get out from the right side of the cage, so he turns around and paces back to the other side of the cage and tries to get out there. If he can’t do that then he will turn around again and try to get out from the right side of the cage again. Maybe this is not the best analogy, but you get the point.

PRICE has a life of its own and will act like any other natural force, even in the penny stock marketplace.

So GRDO did the price test of previous support and now is oscillating back up to the top of the range, or at least one would hope so.  That scenario is only valid as long as GRDO is able to hold the short term white up trend line. That remains to be seen, but so far at least it looks constructive.

Incidentally this entire price chart pattern structure that you see in the chart above is at least SOMEWHAT similar to the price pattern structure that EESO had before it shot up to .05 from sub penny range. I am not saying that GRDO is going to do the same thing as EESO, but I can tell you that if GRDO keeps this uptrend going and then gets above that top range resistance level of .004 to .005 range, it could set up a very big move up maybe similar to what EESO did, but that sort of speculation is way too early to do right now.

For now lets see how this minor uptrend holds, or not.

Inca Designs is one penny stock that has had an extraordinary run. I have been watching it for over a month now.  Unfortunately I was not able to catch it in time for the breakout that it recently did. I really thought that IDGI would consolidate sideways for a longer while.

Anyway, the price chart of IDGI is still interesting. But it does have a few challenges ahead that must be meet in order for the bullish case to stay intact. The funny thing about penny stocks is despite the fact that they are so cheap, they still for the most part obey the rules of technical analysis and price and volume relationships.

So what I see right now with Inca Designs is the first blockbuster move from the lows of .0001 area to the red dotted line that marks the .007 level.  That was a big move but then IDGI went into a sideways trading range building cause for the next move. It was not able to break out of the trading range until about 3 months later.  The breakout looks valid in terms of the nice 3 wide price bars, but the volume on the breakout is a bit of a concern to me at this point.  We did under 10 million shares on the breakout.  If you compare that to some of the previous price swings in either March or April you can see just by eyeing it that we are really lacking suitable breakout volume. What you want to see is volume on a breakout that is at least equal to or greater than previous swing volumes.

The other thing to always watch for on breakouts from this type of pattern is a retest of the breakout area.  That is about as common as motherhood and apple pie.  So far we can see that IDGI has fit the bill in that aspect and has now come back down to retest the breakout area and it has been on very light volume which is a good sign.

So it is critical in my opinion that we hold above .007 here in order for IDGI to maintain its up trending ways.  It is quite possible after this retest that we will bounce back up to the .015 area again and then start building another long sideways trading range similar to what happened in March through May.

Aside from the light volume breakout, IDGI is a pretty well behaving penny stock which a lot of the time is a rare thing.  Finding a very well behaved penny stock is really tough these days.

I think I am going to start a new trend here and start to rate the penny stocks that I profile here with a numbering system. 1 will define the absolute most perfect penny stock setup that has ever existed in the history of manking. And 10 will define the absolute worst penny stock setup.  Obviously 5 is going to be right in the middle and make it a 50/50 type setup. So I am going to rate IDGI a ‘3’ right now and think we have a good shot at a testing move back up to .015 which would be a 100% move.