Blog : Raging Bull Grows Horns

by Ed Zwirn on April 15th, 2013

Just when you thought it was safe to go back into the water: Penny stock prospects stand boosted by an incredible stock market surge, leaving everybody to ask about bubbles. The Dow Jones Industrial Average closed at 14,865.06 Friday, up more than 2% over the prior week's 14,565.25 and up about 13.4% so far this year.

One factor giving penny stocks a boost around midweek was the apparently inadvertent early release of the minutes from the Federal Reserve's March 19-20 meeting, at which it was decided to continue the central bank's aggressive monetary stimulus efforts. Beyond providing conspiracy theorists with good grist, the minutes themselves provide confirmation - as if more could be needed - that the Fed is not likely to slow down the printing presses any time soon.

In any case, the actions of the Fed, combined with the recent stimulus initiated by the Bank of Japan, mean that the world's central banks (and maybe even the European Central Bank) remain committed to monetary expansion, even as their respective governments remain tight fisted over spending.

Other economic news announcements late last week were mixed for penny stocks. On Friday, the market was disappointed by an announcement that retail sales fell 0.4% in March, after rising 1.1% in February.  Also on Friday, inflationary expectations were further dampened by a report showing that producer prices actually fell 0.6% in March, all but wiping out a 0.7% February rise.

Looking ahead this week, economic news releases worth a penny stock investor's attention include the Tuesday morning announcement that is expected to show a 0.1% fall in the consumer price index occurring in March, following a February rise of 0.7%. Any low reading like this, especially following Friday's PPI announcement, should suffice to put any inflation hawks, if there are any left out there, on stand down.

Also Tuesday morning, March housing starts are expected to weigh in at 930,000, up from the prior month's 917,000. In addition, the consensus calls for March building permits to be reported at 945,000, versus February's 946,000.

In any case, the market for everything from penny stocks to blue chips resembles nothing more than a raging, charging testosterone-driven creature making for the nearest red sheet and looking for stocks to buy. Whether this bull has it in him to keep charging past that sheet will be answered in the due course of time. In the meantime, investors stand ready to believe in the waste product left in his wake, at least until they don't, which could mean a bumpy ride for penny stocks.