Blog : What, Me Worry?

by Ed Zwirn on March 5th, 2013

The sky may have fallen in, but the stock market apparently hasn't noticed.

Penny stock investors take note: The stock market as a whole has not so much as sneezed at the fact that the $85 billion federal budget sequestration is apparently going into effect. Despite the dire predictions of the consequences of going off this latest "cliff," the Dow Jones Industrial Average closed at 14,172.82, up 38.16 on the first full business day to follow sequestration and within 40 points of its all-time high close.

But there are signs of weakness. For one thing, it remains to be seen whether the negative buzz that will come about when sequestration furlough and layoff notices start going out next month will outweigh all this bull sentiment.

For another, and this one should concern penny stocks more specifically, there are signs of increasing risk aversion on a global level. According to EPFR Global, which tracks flows into major funds, bond funds outgained equity funds by the biggest margin in 14 weeks last week, as retail investors pulled funds out of the latter for the first time this year. Another bearish indicator seen last week was the strong showing for U.S. money market funds, at almost the opposite end of the spectrum from penny stocks.

Penny stocks we follow have seen a similarly mixed performance:

Penny stocks losing pennies included:

•  Aviat Networks (AVNW) closed Monday at 3.52, down from its 3.70 close on Feb. 22, a drop of 4.9%. On Monday, Indian telecom major Bharti Airtel announced that it would sign with LM Ericsson Telephone Company (ERIC), an Aviat competitor. ERIC closed Monday at 12.49, up from Feb. 22's $12.31.

• Patient Safety Tech (PSTX) was fetching $1.68 late Monday, down from $1.75 over the period, but its last move during the period was on the uptick: On Monday this penny stock rose 6 cents following an announcement that wholly owned subsidiary SurgiCount Medical is introducing a new proprietary line of surgical sponges.

Among the hot penny stock performers:

• Sirius XM Satellite Radio (SIRI) did better during the period, closing Monday at $3.20, up 5% from Feb. 22's $3.05.

• Also among the penny stock winners this week has been NeoGenomics (NEO). As of the close Monday, the provider of cancer-focused genetic testing services was trading at $3.59, up 18.5% from Feb. 22's $3.03. On Feb. 28, the company announced that it had priced an underwritten public offering of 3.15 million shares of common stock at $3. Of the shares offered, the company is selling 2.85 million shares and a selling stockholder the remainder.