Penny Stock Liquidity

Low Volume and Penny Stocks

You have probably heard the old saying, “Sell in May and go Away”. Art Cashin from UBS made it famous in the 2009 crash. As you know, many mutual funds and hedge fund managers vacation during the summer months while volume and liquidity dries up. Due to the lack of buyers, it becomes very difficult to stage sustained rallies.  Short sellers typically don’t like to short dull markets. It’s not very hard for sellers to gain control. Now how does this relate to penny stocks? As we know hot penny stocks move on retail buying. Now it’s safe to say that if we are in a dull to down market.

Even your most aggressive penny stock trader is going to hold back some of his ammo. While everyone always hopes for a summer small cap rally, it doesn’t always happen. For every hot stock like MOP Environmental Solutions (OTC.PK: MOPN) that moves, there is a cult stock like Cascadia Investments (OTC.PK: CDIV) that slows down a little bit. The difference between these two names is that the volume in MOPN has surged due to an event (BP contract) and CDIV has slowed purely due to a lack of interest.

So keep in mind that in low volume markets, penny stocks will breakout less often. However world events that can create huge gains still happen. This is more prevalent in the penny stock arena. Just try not to trade just for the sake of trading. Remember to pick your spots. The potential for massive gains is still there, just less frequently. Being bored is better than losing money.