Penny Stock Spongetech Delivery Systems Inc (SPNG) Makes Key Reversal

I've been following the saga of penny stock Spongetech Delivery Systems Inc (SPNG) since the stock began to run higher in late March. My only problem - and the reason I suggested taking profits then - was that Spongetech shares had a history of strong starts that faded quickly.... possibly fueled by a pretty active anti-SPNG community. Sure enough, down it went, from the peak of 3 cents to a low of 1.3 cents on Wednesday.

I still liked the company and the opportunity this penny stock held the whole time.... I just didn't want to jump on a sinking ship.

Well, that ships seems to be rising again. We saw a big reversal bar on Thursday, and we're seeing strong follow-through today.

I don't talk about them much, but I'm a moderate fan of taking the hints that the shape of the daily bars (and the patterns from one day to the next) can tell you. It's called candlestick analysis, since stock chart's daily bars can sometimes look like candles. Is it perfectly accurate? No, but it's better than throwing darts.

Anyway, here's a little lesson using Spongetech as a guinea pig.

The combination of Wednesday's bearish bar and Thursday's bullish bar is a form of a bullish piercing pattern.... a bullish engulfing pattern between the two days. Ideally, the pattern is immediately followed by confirming (bullish) bar. More volume would be icing on the cake.

Today's that kind of day, though I'll confess the strength of today's move may be a little too much.... nothing stays that strong in this environment.

On the other hand, SPNG shares rallied and rallied and rallied in early March, so if any penny stock can keep at it and defy the odds, it's the one you're looking at. Worth a swing anyway. And, this 'second wave' is a much safer pitch to swing at than the first one was.

I still contend SPNG is 'worth' 20 cents, though I still have my doubts the stock will make a beeline for that level. Be prepared to be in and out a few times if you're 'trading' SPNG. My first near-term checkpoint is 3 cents, and then 4.6 cents. Tight stops, as always.

Oh, and if you want the ongoing ins and outs for Spongetech and the other penny stocks we've picked, be sure to sign up for the free e-newsletter.