CERP traded down to 24.5 cents this week, failing to break upside resistance. The lower close came on much higher volume with downside support at 23 cents and the MACD showing the beginning of a down trend. If you can short this one, set a sell stop at 22.5 cents, half a cent below support. I’m not going to play this though. I’m going to wait for an entry, long or short, into USO, United States Oil Fund.
- 8/11/08 – Buy CERP @ $0.28
- 8/21/08 – Sell CERP @ $0.245
- Trade +/- = – 12.5%
- Account Total +/- = +11.9%
It’s been a few months since it’s been safe to buy stocks. Remember, you only want to buy when the trend is moving in your favor. A follow through day
last week confirmed the uptrend, which now makes it safe to enter, at least for the time being. With the market as fickle as it has been, be vigilant and take profits if the market begins to sour.
Now that the market has given us the "all clear" to buy, it’s a matter of finding the right stock at the right time. I subscribe to a couple environmentally focused stock picking newsletters, which you can find at Green Chip Stocks. Most of their recommendations are based on company growth and macro-economic trends, essentially piggybacking on the trend towards clean, green energy. That being said, they tend to find good companies, but they fail to provide the technical side of the trade: entry and exit, preferring a long-term hold approach instead.
One of their past recommendations, Cereplast Inc. (CERP), is a maker of corn-based biodegradable plastic. I really like the concept on this one. It’s biodegradable plastic! How much more of a no-brainer can you get? The problem with this stock has been the timing, not the concept or company. It’s been a long time, January of this year and May of ’07 before that since we’ve had a good buy signal on the charts.
Here’s the situation: CERP moved above the 20 day moving average and closed above for five straight trading days with a bounce off the line in today’s session. The past two candlesticks show that the bears tried bringing the stock down, but failed to keep it there forming a hammer top. This formation is indicative of a coming breakout. The MACD shows an uptrend as well.
Here’s the buy for tomorrow:
- Buy CERP at $0.28 Limit Good Til Canceled (GTC)
- Stop Loss at 20 cents
You can place this order tonight and when the price drops to 28 cents tomorrow, you’ll be in. Short term resistance is at 39 and 47 cents. Stay tuned because penny stocks can be volatile which could result in large gains and losses.