Since my last blog entry both GOL and REN have further moved.
As expected GOL has continued to spike after its breakout. Thus the promising breakout pattern can be confirmed for this case.
In the case of REN, the prediction did not come true yet however. Even though the sharp uptrend ended and a first red day has followed this red day could not yet trigger a sell off of the stock. Since then the stock has been consolidating.
There are basically two setups that I find interesting trading penny stocks. These two are buying multi-day breakouts or short selling over-extensions.
Buying a Multi-day Breakout
After running my stock scans last night I had Gol Linhas Aereas Inteligentes SA (GOL) on my watchlist. While this stock technically speaking is not a penny stock the set up applies anyway. On the chart it can be seen that since mid September 2015 resistance hast been around $11.8. This level was tested four times before the stock finally broke through resistance yesterday and continued trending upwards today. Since then the stock has been up more than 10%. A stock breaking through multi-day or multi week resistance – this simple setup is what I am looking for and I will keep GOL on my watchlist.
On the next chart of Resolute Energy Corp. (REN) we see two set ups. On the one hand we see a breakout again. Since last February the stock could not break above the price level of $4 which functioned as resistance. Again it was tested three times before the stock broke through it in early July and consequently increased by nearly 100%. Again we can observe the power of breakouts. However, another pattern becomes obvious – over-extension. The stock has climbed by incredible 100% in just three days! That is not normal! that is not sustainable! This stock will crash again, it is only a matter of time! Short selling over-extensions like this I would look for a trigger, for example the stock going red on the day and then short selling into panic.
Lets see when REN will crash and what GOL will do in the next days.