One Example of a Good Penny Stock to Watch – GWG

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If you’re like most penny stock traders or investors, you’re more than likely always on the lookout for good penny stocks to watch and potentially buy should the stock reach your target entry price. Penny stock opportunities come and go each day however, so instead of just providing you a list of penny stocks to look out for tomorrow (which will be pretty much useless to you the day after), I want to help educate you in the types of attributes to look for in a penny stock so that you are able to form your own penny stock list at any time.

The example I’ll be using to illustrate my points at the present time is Great Western Minerals Group (GWG.V). Disclaimer – I own shares of GWG and will be merely using this stock as an example. What is right for me may not be right for you so always consult with a licensed financial advisor before making any investment decision. Now let’s get started.

Favored Sector

The first area I’d like to touch on is whether the stock falls under a sector that is currently favored in the market. There is some truth to the saying “a rising tide lifts all boats”, meaning, if the particular sector you invest in is favored in the market, in general the stocks falling under this sector will do well. So, if you’re trying to decide between two great penny stocks and one is in a hot sector, why not choose the one in the favored sector? – It can only help the stock’s potential. In our example, Great Western Minerals is in the rare earth minerals exploration and mining sector which is presently quite bullish.

Potential for Massive Gains

In addition to being in a bullish sector, the stock should have a very promising outlook in both the short and long term. In our example, Great Western Minerals, if we look at the current situation, China mines over 95% of the world’s rare earth minerals. These minerals are essential to manufacture a large number of products including computers, wind turbines, automobiles, and mobile phones. China has been using their near monopoly of these minerals for political gain, even going so far as to blocking shipments to Japan, Europe and even the United States. One can only imagine what would happen if China stopped shipments altogether to these countries. As such there is a massive push to source these minerals from other parts of the world and promising companies like Great Western, are doing just that. In this type of environment, such a penny stock has the potential for truly massive gains which is the type of penny stock you want to look for. Penny stocks are inherently risky so why not choose one that has a large amount of potential.

Healthy Balance Sheet

Regardless of how great the story is behind a stock, what’s equally important is how the balance sheet looks and particular how much debt a company has taken on. Companies with large amounts of debt and little to no income are high risk so it’s always better to choose a stock that is well financed with large amounts of capital and limited debt. Even better is to find one that is also yielding a profit, though good penny stocks like these are hard to come by especially in sectors like mineral exploration.

Bullish Chart Pattern

Since I’m more of a technical trader, I’d say this is probably the most important point to consider. The first three points I mentioned should help you find some great penny stocks to watch but the chart is what will tell you when to actually buy them.

When evaluating a stock’s chart I like to look at both the short term (past 6 months) and long term (past 3+ years) though I find the longer term chart paints a clearer picture of where the stock is headed. Let’s look at Great West’s long term chart as an example.

As you can see from the chart, there are key characteristics that make this stock attractive. Firstly, in general there has been higher volume as the stock price rises compared to when it falls. This indicates confident buying – a bullish sign. Secondly, the stock was in a bearish downward channel but has since broken free to the upside and now resides in a bullish rising trend channel. Thirdly, the stock’s 50-week moving average has crossed the 200-week moving average, otherwise known as a bullish crossover. I’ve found this crossover pattern in particular to be a very positive sign to a stock’s long term outlook.

So this stock is definitely one to watch but is it one to buy now? Perhaps, however I personally might wait first for the MACD to clearly trend upwards again since it’s currently threatening to crossover to the downside which would be bearish.

Of course, I’ve only really touched on a few aspects of technical analysis. To be able to perform adequate TA you really should consider taking a technical analysis course or at the very least, read a good book on the topic – It truly can make or break you as a penny stock investor.  As always however, consult with a licensed financial advisor before making any investment decisions.

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