Lessons From A Penny Pro

Penny Stocks Trading: Stock Offering Explained

The market is taking it on the chin today, as investors are scrambling for protection…jumping into bonds and out of stocks.  

Now, despite the uncertainty in stocks, fears of a trade war, and a global economic slowdown… it’s business as usual in penny stock land.

You see, there are thousands of stocks that you can trade in a brokerage account… some that aren’t impacted by trade talks or the global economy.

For example, I focus on small-cap penny stocks. And stuff that has nothing to do with U.S.-China trade talks or the health of the global economy…

While most traders are getting hammered today… the penny stock plays I traded and alerted clients on are thriving… even during this bloodbath.

 

(Are you ready to start receiving my alerts? If so, click here to join my service.)

 

Now, let’s not get it twisted here. The stocks I’m trading do have news in them, but it’s specific to them and not the overall market.

You see, the more you trade penny names… the more you’ll learn what moves this class of stocks. You’ll find out that certain types of catalysts push the needle more than others.

That said, I’d like to talk to you about something that does move the needle when it comes to penny stocks and that is stock offerings.

Read on to find out what it is, and how I was able to combine this information with my charts to profit in OBLN.

 

Fundamentals Matter in Penny Stocks… Sometimes

 

Sometimes, when you’re trading penny stocks, it helps to know the news… but you need to pair that with charting.

For example, sometimes, there are partnerships with large companies… or they announce something like a reverse stock split, or stock offering (we’ll get into the details of this shortly).

Now, if you don’t know the news and just look at a price chart, you wouldn’t actually know what’s affecting the stock… you might think the stock is just going up and down for no real reason.

With penny stocks, there’s one key bit of information that you need to know, and that’s stock offering. We see it all the time… and as penny stock traders… we need to be ready when we see this type of headline in a stock.

I’m talking about stock offering announcements here.

 

Stock Offering Explained

 

You probably guessed it… a stock offering is when a company offers more shares of its stock. Now, you might think a stock offering is an initial public offering (IPO)… well it’s not. You see, a company issues an IPO when it’s the first time the stock is ever offered to the public to trade.

If you don’t already know, private companies use IPOs to raise capital to grow their operations.

However, what happens if a publicly-traded company wants to raise capital?

Well, they can either do a secondary offering or a registered direct offering.

Now, all you really need to know is the fact that these are some of the ways companies raise capital after they’ve gone public. In other words, they’re offering more stock to the public to raise capital.

Stock offerings actually affect the price of a stock a lot… but it can uncover some opportunities, if you also know a bit of technical analysis.

If you haven’t figured out yet, when a company offers more stock to the public… it actually dilutes their shares. If a company is conducting a stock offering, it decreases existing shareholders’ ownership… and increases the total shares outstanding.

But what happens to a stock if it offers more shares in the secondary market to the public?

Well, the stock goes down.

That said, let’s take a look at how I used this news to trade a stock that was down around 65% after it announced the offering… and no I wasn’t trying to catch a falling knife here.

 

Trading Penny Stocks Around Stock Offerings

 

A little bit of fundamental analysis goes a long way when you’re trading penny stocks… now I’m more focused on technical analysis, but I don’t ignore what’s going on with the company itself.

Now, one stock that I traded off a stock offering was Obalon Therapeutics (OBLN).

Here’s a look at the daily chart in OBLN.

 

 

The reason for this massive gap and go in OBLN?

The company announced it expanded clinical data set for its balloon system was presented at a conference… the very next day, the stock hit a high at $1.64 (a 300%+ move)… and closed up around 237% for the day.

Now, when we see moves like this… look out for a stock offering. You see, when a stock moves like that, companies like to take advantage and raise capital… basically, the stock moved so much from where it was, they’re willing to see the stock drop a bit to fund their operations.

The company announced a $3M registered direct offering – not so big in my opinion.

Well, here’s a look at OBLN on the daily chart just a few days after its runup and the announcement of the registered direct offering.

 

 

Now, I thought this move was extended… and after all, a $3M stock offering didn’t really justify the 65% drop.

Well, if you read my last post about moving averages… you actually could’ve spotted this trade too.

You see the blue rectangular area?

Well, OBLN actually tested the 20-day simple moving average (SMA)… and I figured that would be a good entry… if it broke below, I had a clear area to stop out.

Here’s what I’m talking about.

 

 

Notice how the stock got right to the blue line… rebounded and closed above it?

Well, that let me know OBLN had some support there. In other words, the stock would probably have a tough time breaking below that blue line.

I got into OBLN at $0.565, just above that blue line…

And I was looking for the stock to get back to the red line (the 50-day SMA)… and potentially break above… I was looking to take profits around 70 cents to 80 cents.

Well, on Tuesday… we actually got that.

 

 

I was able to profit over $1,340 just on OBLN alone with the strong rebound Friday and the gap up Tuesday morning. That was a perfect short-term swing off a major moving average line and a little sprinkle fundamental analysis.

Now, I wasn’t the only one making money on Tuesday when the markets were bleeding… my clients who I alerted the OBLN trade to also had some nice profits.

 

Now, if you want to see how I was able to make money, despite the market sell off click here to get started.

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