What Goes Up...Must Come Dow...
- Date: 2007-03-30 - Word Count: 416
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The bursting of the internet bubble in March 2000 taught us (or retaught us) one thing, that is: what goes up must come down.
This is why I think the recent tear that the Dow has been on could usher in renewed interest in penny stocks.
The record-setting run by the blue-chip Dow industrial has been busy stealing headlines lately. But small-cap stocks, including penny stocks, have been quietly outgaining the limelight loving behemoths. As they are wont to do when oil prices slide.
The prevailing trend has been that cheaper energy costs will cushion the U.S economy from a sharp slowdown in growth even as the housing market stumbles.
Analysts note that the preference for growth over value means that penny stocks could be the next area of interest for Wall Street.
"If you are in an economy that's slowing a little bit, with slightly higher interest rates, you want to own a unit of growth companies with good balance sheets. That's easier to find in small-caps," said one New York analyst.
Some investors lost faith in the smaller stocks when a six-year rally hit a brick wall in May. Before breaking their six-year uptrend, small-caps helped drive U.S. equities to their strongest first-quarter since the Internet bubble burst in 2000.
The rise of crude oil prices back then helped end their upturn, as did worries over the housing market. But with oil prices having now fallen significantly since mid-July, investors have again become more optimistic. And penny stocks have become more attractive.
In an environment of reduced risk, investor's tend to see penny stocks as an innovative avenue for growth; and a playing field that can generate solid profit gains. As the economy gains steam...penny stocks could be the markets biggest gainers.
The luster of penny stocks can also be found in the expectation that, unlike their headline grabbing, big-cap peers, they are not likely to see a big technical correction in the weeks ahead.
"The surge in the Dow is consistent with what happens at the end of bull-cycles, not the beginning," said one Wall Street analyst.
But with geopolitical tensions simmering on all four burners, investors will, as per usual, want to use caution. After all, it doesn't take very much for the price of oil to surge higher...and it's also unclear just how bad the housing slowdown may get.
But for now, lower oil prices and a gentle landing in the housing sector could spell ongoing success for the oft-neglected penny stock. And being penny stock investors, you're ready for the herd.
This is why I think the recent tear that the Dow has been on could usher in renewed interest in penny stocks.
The record-setting run by the blue-chip Dow industrial has been busy stealing headlines lately. But small-cap stocks, including penny stocks, have been quietly outgaining the limelight loving behemoths. As they are wont to do when oil prices slide.
The prevailing trend has been that cheaper energy costs will cushion the U.S economy from a sharp slowdown in growth even as the housing market stumbles.
Analysts note that the preference for growth over value means that penny stocks could be the next area of interest for Wall Street.
"If you are in an economy that's slowing a little bit, with slightly higher interest rates, you want to own a unit of growth companies with good balance sheets. That's easier to find in small-caps," said one New York analyst.
Some investors lost faith in the smaller stocks when a six-year rally hit a brick wall in May. Before breaking their six-year uptrend, small-caps helped drive U.S. equities to their strongest first-quarter since the Internet bubble burst in 2000.
The rise of crude oil prices back then helped end their upturn, as did worries over the housing market. But with oil prices having now fallen significantly since mid-July, investors have again become more optimistic. And penny stocks have become more attractive.
In an environment of reduced risk, investor's tend to see penny stocks as an innovative avenue for growth; and a playing field that can generate solid profit gains. As the economy gains steam...penny stocks could be the markets biggest gainers.
The luster of penny stocks can also be found in the expectation that, unlike their headline grabbing, big-cap peers, they are not likely to see a big technical correction in the weeks ahead.
"The surge in the Dow is consistent with what happens at the end of bull-cycles, not the beginning," said one Wall Street analyst.
But with geopolitical tensions simmering on all four burners, investors will, as per usual, want to use caution. After all, it doesn't take very much for the price of oil to surge higher...and it's also unclear just how bad the housing slowdown may get.
But for now, lower oil prices and a gentle landing in the housing sector could spell ongoing success for the oft-neglected penny stock. And being penny stock investors, you're ready for the herd.
Related Tags: stocks, investing, investments, stock market, oil, dow, investors, penny stocks, penny stock, dow jones
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