Bloomberg
How a penny Stock explodes from obscurity to 451% of earnings through chat forums
(Bloomberg) – “Are you still awake?” It was 12:43 am on January 19, and TRGainz, a frequent user of the social media platform Stocktwits, was growing impatient. And Alwaysliquid too. “I can’t sleep,” he countered seconds later. In about nine hours, financial markets would open in New York and, when they did, an obscure low-cost action under the name Blue Sphere Corp. suddenly, and apparently miraculously, gliding, delivering an unexpected fortune of about $ 30 million to those who had loaded the stock in the previous weeks. TRGainz and Alwaysliquid knew what was coming and were struggling to contain their excitement. For days, the conversation on this Stocktwits page and on others, like a message board for Reddit users dedicated to low-cost actions, had been growing steadily over Blue Sphere. That the company had no listing on the stock exchange or recent financial disclosures of any kind did not seem to matter to anyone. It was a clean energy company, and with Democrats taking control of the White House and Congress, that was enough to make it a salable story for the masses of the day trade who became an unstoppable force in the great bull market pandemic. shares .Moneyman223 was a prominent voice everywhere, begging comrades to come in before the stock exploded. “Come in or regret not coming in,” the moneyman posted on January 14, the day after another Stocktwits member marked Blue Sphere as a clear winner on the Democrats’ climate change agenda. At the end of the following day, the final session of the negotiating before the long weekend, Moneyman223 was poking again: “It is not too late for your fools to still enter.” Then, a character named byelowsellhi declared: “Have a great weekend, future millionaires.” Blue Sphere fired as announced on January 19. At the end of the day, it rose 451%, having gone from six tenths of a cent to more than 3 cents. Approximately 2 billion shares were traded that day, a surprising, but not entirely abnormal, volume in a new era of stock speculation. The posts from the chat forum arrived fast and furious as the stock skyrocketed: “Incredible day, everyone”, “let’s go rich together” and “congratulations to everyone who took the risk and believed in themselves !!!!! ! ” on any given day, there are a dozen or more Blue Sphere-like stories from small, nonprofit businesses that mysteriously range from obscurity to viral sensation. Lately, the frenetic up and down rhythm of these stocks has begun to drown out all other forms of speculative mania in the pandemic-era market. Call it another foam marker – retailers plagued by mass psychosis amid zero commission rates and zero benchmark interest rates – to be introduced alongside the GameStop Corp. saga, the triple cryptocurrency rally, the SPACs which are minted daily and the highest records are reached by the main stock indices. “People start looking around and saying, ‘What else can I do with my money?'” Said JJ Kinahan, chief market strategist at TD Ameritrade. The rules relating to the trading of over-the-counter securities vary from broker to broker, but can be purchased on any of TD Ameritrade’s trading platforms for a fee. “These would be at the top of my list to say to people, ‘Please understand the risk you are taking when entering there.’ I learned very early in life, if there are many advantages, there are many disadvantages. People may simply not want to talk about the downside. ”For those who are observing from a distance, it is difficult to understand how the actions of the moment are chosen. How does critical mass form around them? The universe of companies that make up over-the-counter trade in America is vast and they trade on poorly regulated quote services, where information is scarce or nonexistent. Like everything on the Internet, it is almost impossible to trace the exact origins. But when trying to locate the spark, these types of message board conversations almost always portend takeoff. And while no one has so far attributed illicit intent to events in today’s traders’ chat rooms, it’s hard not to notice the similarity to the penny-stock fads of the past, when schemes like “pump-and-dump” and “biggest fool” were the fashion. Stocktwits, which presents itself as the largest community of investors and traders, has increased its focus on moderation and content support to crack down on fast-getting scams, according to CEO Rishi Khanna. “It is something we keep an eye on. Now, obviously, we cannot pay attention to each screen, so we depend on the community to report something that may seem a little strange or cool, ”Khanna said in an interview. “We are not going to stop everything – this is just physically impossible – but we do our best.” Attempts to contact Blue Sphere employees for comment were unsuccessful. E-mails and voice messages left by Bloomberg News have not been answered. The company has not submitted a report to the US Securities and Exchange Commission in about two years. After the increase in shares last week, a member of Stocktwits with the username WolfeRegalia, wrote: “I can’t find any real information. The company’s website has financial data until 2018. Any leads that anyone can recommend? Thanks in advance. ”This is the challenge of distinguishing real investment in long-term stocks from direct injection – when a group of people stack the same stocks at the same time to influence prices quickly. A fast-growing Reddit forum dedicated to penny stock trading recently updated its rules to contain the user’s shilling. The page, r / pennystocks, now has more than 430,000 members – “astronauts”, using the nomenclature of the website itself. This represents a 21% increase over the end of December, according to Breakout Point, a data and analytics company that tracks this information. At the top of the r / pennystocks page is a drop-down menu of frequently asked questions. One option says, “Identifying a bomb”, and directs you to a three-year post titled “How to find and operate bombs.” The first step? According to the post, start by downloading Stocktwits, but use your own discretion. “I hesitate to say this simply because I don’t want you to believe all the hype out there,” says the post. “Remember, don’t trust anyone, especially the whole conversation about Stocktwits. Most of it is garbage. Don’t believe it. ”Then find a stock that has recently become parabolic, do some research to see which people were telling people to buy before the peak (they are the fire department), follow these people and set up alerts for when they make new posts. “Don’t go overboard,” says the post. “Now I want to emphasize the importance here that pumping stock is illegal. However, investing in a stock that is rising in price and volume does not. ”But, in closing,“ Good luck to everyone! Let your losses be low and your gains high. “Nowadays, there are a lot of hopeful people out there.” Newly formed day traders who have been dominant forces in the market – they keep finding other places to go and bring that speculative fervor into the mix, and it seems that penny stocks are the recent developments, ”said Liz Ann Sonders, chief investment strategist at Charles Schwab. OTC stock trading is available to those with Schwab brokerage accounts. “I have no speculation or knowledge or even to guess what starts this, but whatever starts, it feeds on itself and last year this has been another hot trend.” As for Blue Sphere, it seems that the fever did not subside. The stock price almost fell 50% in the first three days after its January 19 pop, but on Monday it shot up again, closing the day at 2.2 cents, with a 26% gain. For more articles like this, visit us at bloomberg.comSubscribe now to stay on top of the most trusted business news source. © 2021 Bloomberg LP