Blog : Penny Stock Week: Preparing for Fireworks

by Ed Zwirn on July 1st, 2013

The stock market has opened its first session of Q3 on a bullish note, with the Dow Jones Industrial Average up 1% and the NASDAQ up 1.33% as I write this penny stock week blog.

Monday morning's positive showing follows a week in which the market eked out a slight gain, with the DJIA closing Friday at 14,909.60, up 0.7% over the prior week's 14,799.40 close, dragged downward late in the week by news that China's banking sector is undergoing liquidity problems, a potential game changer for any penny stock dependent upon exports and a sobering possibility for anyone looking at stocks to buy and sell.

Last week saw penny stock investors treated to a release of strong economic indicators:

--On Tuesday morning, the report on durable goods orders showed a better-than-expected 3.6% rise for May, driven by vehicle purchases, following April's adjusted 3.6% increase.

--Later Tuesday morning, two reports came in showing a continued strong recovery for real estate: 1) The Case-Schiller 20-city index had been expected to show a 10.5% April price rise, following last month's blockbuster release, which showed a 10.9% March increase. Instead, the index surpassed expectations by increasing 12.1%. 2) New home sales for May came in at a better-than-expected 476,000, following April's adjusted 466,000.

--On Thursday morning, May personal income showed a better-than-expected 0.5% increase, following April's adjusted 0.1% rise. Personal spending, on the other hand, rose 0.3%, following April's adjusted 0.3% decrease.

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

--Monday morning's construction spending report is already out, showing a 0.5% rise for May, following a downwardly revised April 0.1% increase.

--Meanwhile, in a burst of patriotism and/or deeper pockets, Fourth of July spending is expected to go up 58% over 2012, with respondents to a Visa survey planning to spend $300 on Thursday's holiday, up sharply from 2012's $190. Northeasterners plan on spending an average $454, while Midwesterners plan to shell out $195.

--The scene stealer this week will likely come on Friday, with the release of the June employment numbers. Nonfarm payrolls are expected to have risen 175,000, the same as May, while the unemployment rate is also expected to hold steady at 7.6%.

The labor market being one of the key drivers of possible Fed expansion or curtailment, penny stock investors  should be prepared to come back from their Independence Day celebrations facing yet another market paradigm. Any significant losses (or gains) in employment or the unemployment rate could prove to be market movers, so save a couple of firecrackers for Friday. It never hurts to be prepared.