Blog : Penny Stock Week: Trading Takes on Bearish Tone

by Ed Zwirn on April 8th, 2013

Penny stock investors take note: The U.S. stock market ended on a bearish note last week, with a Friday morning release reporting a gain of only 88,000 for March non-farm payrolls, down from February's 268,000 and much lower than the 192,000 consensus.  Dow Jones Industrial Average closed at 14,565.25 Friday, down 50.86 for the session and off slightly from the prior week's 14,578.54, but still up about 11.1% so far this year.

Other news reflecting the outlook for everything from penny stocks to blue chips was mixed. Monday morning's construction spending release showed a better-than-expected 1.2% rise for February following a 2.1% January drop. Tuesday afternoon's auto sales release weighed in at 5.3 million for March, off from February's 5.5 million, while March truck sales came in at 6.7 million, versus January's 6.6 million.

Domestic news notwithstanding, the market for penny stocks was also affected during the first week of Q2 by notable overseas development: The Bank of Japan's announcement of an unprecedented monetary stimulus package set the Nikkei soaring Friday, and caused the dollar to hit a 3-1/2-year high against the yen.

As if more proof were needed, the BOJ announcement should put an end to any talk of tightening by the U.S. Federal Reserve Bank, which now has to worry about sustaining the export economy as U.S. products become more expensive overseas due to the strengthening dollar. This imperative is also spilling over to the usually tight-fisted European Central Bank, which is starting to hint at prospects for easing.

And as governments in both the United States and Europe continue to be tight-fisted in terms of spending and deficit policies, the Fed and the ECB will face pressure to take up the slack by buying bonds and using other means to inject cash into their respective economies, boosting penny stocks but also adding an element of uncertainty into global economic policy that can only make deciding on stocks to buy and sell more difficult.

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

* Wednesday afternoon's release of the March 20 Fed Open Market Committee meeting will be parsed for any indication of policy changes being even remotely considered by the central bank.
* Friday's retail sales announcement is expected to show a flat reading for March, following a 1.1% rise in February.
* Also on Friday morning, the producer price index announcement for March is expected to show a 0.1% drop, following a 0.7% February rise.

As of this penny stock blog posting, markets are continuing the downward path they started on Friday, with the DJIA down 53.92 (as of 12:35 p.m. Monday) and the much broader NASDAQ composite off just 4.01.