Blog : Penny Stock Week: Market Shakes Off Losing Streak

by Ed Zwirn on June 10th, 2013

The market for everything from penny stocks to blue chips broke a two-week losing streak last week, with the Dow Jones Industrial Average gaining over 200 points on Friday to close at 15,248.12, up nearly 0.9% from the prior week's 15,115.57.

After trading on the downside for much of the week, the market's rise of nearly 1.4% on Friday was prompted by a report which showed that the U.S. economy added 170,000 jobs last month, a tad higher than the 165,000 reported for April but apparently not enough of a positive move to stoke fears that the Fed would scale back its accommodative monetary policy and put an end to the penny stock party.

At the same time, there was some "good" news for penny stocks: The overall unemployment rate actually increased a bit, hitting 7.6% versus April's 7.5%, while hourly earnings, which had been expected to rise 0.2% in May, remained absolutely flat.

Other major economic news releases last week also were anemic at best, offering little prospect the Fed will tighten up any time soon and dampen prospects for penny stock investments:

--Monday morning's construction spending report, which had been expected to show a 1.1% increase for April, actually weighed in at 0.4%, following an adjusted 0.8% March decrease.

--Monday afternoon's May auto sales report came in at 5.3 million, up from April's 5.1 million level, while truck sales came in at 6.8 million, unchanged from April.

--On Wednesday, factory orders for April showed a somewhat disappointing 1% increase (1.5% had been the consensus), following an adjusted 4.7% March drop.

Economic releases worthy of a penny stock picker's attention this week include:

--Wednesday morning's retail sales report is expected to show a 0.3% rise for May, up from April's 0.1% increase.

--Inflation watchers are staying tuned for a 0.2% rise in the producer price index to be announced on Friday morning, following the prior month's 0.7% drop.

--Also on Friday morning, the market consensus is calling for the announcement of a May 0.1% industrial production increase, following a 0.5% April drop.

Looking farther ahead, penny stock investors hoping to predict the course to be taken by the Fed in the immediate future would do well to parse the language of the next FOMC announcement on June 19 before deciding which, if any, stocks to buy and sell.

--Also, the June 18 consumer price index update for May will be the next indication of whether inflation shows any sign of reappearing. The last time around, the CPI for April actually dropped 0.4%. Although not as key as the FOMC announcement, any surprises on this front should weigh heavily on penny stocks.