Penny Stock Week: Penny Stocks, Blue Chips Awash in Cash

by Ed Zwirn

Read all the past Blog entries here

For those of you in the penny stock world who may been forcibly deprived of internet access: The stock market has scored its fourth consecutive positive week, with the Dow Jones Industrial Average closing Friday at a record 15,354.40, up nearly 1.6% from the prior week's 15,118.49 and up almost 17% so far this year.

The market actually picked up speed last week, charging ahead nearly twice as fast as the prior week as everybody and his uncle came looking for stocks to buy. And it is worth pointing out that the strongest part of the rally came at the end of the week, with the DJIA gaining over 121 points on Friday alone.

Economic news this week was generally very supportive for everything from penny stocks to blue chips (although the latter are getting much pricier):

* Monday morning saw the release of a retail sales report which exceeded expectations. In April, retail sales, driven by auto purchases, rose by 0.1%, better than the 0.3% drop expected by the market and an improvement from February's adjusted 0.5% drop.

Penny stocks should continue to benefit from an accommodative monetary policy, because:

1) Inflation concerns remain nonexistent:

* Wednesday's Producer Price Index report showed an accelerated decrease of 0.7% in producer prices for April, sharper than the market had expected, following a March drop of 0.6%. The "core" PPI, which excludes food and fuel, was expected to show a 0.1% rise for April (which it did), after a March 0.2% increase.

* Thursday's consumer price index release showed a sharper-than-expected April price drop of 0.4%, following a 0.2% fall in March. The core CPI rose as expected by 0.2%, following a 0.1% March rise.

2) The economy shows no sign of overheating:

* Wednesday's industrial production update showed a 0.5% drop for April, much higher than the expected 0.2% April, following a 0.4% March increase

* On Thursday, April housing starts came in at 853,000, much lower than the consensus 970,000, down from March's adjusted 1.026 million. Building permits, a more leading indicator, weighed in at a higher-than-expected 1.017 million, a sharp rise from March's downwardly adjusted 890,000.

Looking ahead this week, Wednesday will see Fedspeak take center stage with Congressional testimony by Ben Bernanke and the release of the latest FOMC minutes.

These should be closely watched by penny stock traders for any hint of a shift in current Federal Reserve easy money policies.

Other economic releases worth of a penny stock picker's attention this week include:

* On Wednesday, April existing homes sales expected to be reported at 4.98 million, versus 4.92 million in March. On Tuesday, new home sales for April are expected at 425,000, up from 417,000.

* On Friday, the market is expecting to see orders for durable goods rise 1.6% in April, following a March 6.9% drop.

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