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How a Penny Stock Explodes From Obscurity to 451% Gains Via Chat Forums

(Bloomberg) — “You guys still awake?”It was 12:43 a.m. on Jan. 19, and TRGainz, a frequent user of the social media platform Stocktwits, was getting antsy. So too was Alwaysliquid. “Can’t sleep,” he shot back seconds later.In some nine hours, financial markets would open in New York, and when they did, an obscure penny stock by the name of Blue Sphere Corp. would suddenly, and seemingly miraculously, soar, handing a windfall of some $30 million to those who had loaded up on the stock in the weeks before.TRGainz and Alwaysliquid knew what was coming and were struggling to contain their excitement. For days, chatter on this Stocktwits page and others, like a message board for Reddit users dedicated to penny stocks, had been steadily building about Blue Sphere.That the company had neither a stock exchange listing nor recent financial disclosures of any kind seemed not to matter to anyone. It was a clean-energy company and, with the Democrats taking control of both the White House and Congress, that was enough to make it a sellable story to the day-trading masses who had turned into an unstoppable force in the great pandemic stock rally.Moneyman223 was a prominent voice throughout, imploring fellow members to jump in before the stock exploded. “Get in or regret not getting in,” the moneyman posted early Jan. 14, a day after another Stocktwits member had tagged Blue Sphere as a clear winner from the Democrats’ climate-change agenda.Late the next day, the final session of trading before the long weekend, Moneyman223 was prodding again: “not too late for you fools to still get in.” Then a character named byelowsellhi declared: “Have a great weekend fellow future millionaires.”Blue Sphere soared as advertised on Jan. 19. By the end of the day, it was up 451%, having risen from six-tenths of a penny to over 3 cents. Roughly 2 billion shares traded that day, staggering and yet not altogether abnormal volume in a burgeoning new age of penny stock speculation. The chat-forum posts came in fast and furious as the stock soared: “Incredible day everyone,” “we r gonna filthy rich together” and “congrats to everyone who took the risk & believed in yourself!!!!!!”On any given day, there are a dozen or more Blue Sphere-like stories of tiny, profitless companies that mysteriously go from obscurity to viral sensation. Lately the frenzied pace of boom and bust in these penny stocks has started to drown out all the other forms of speculative mania in the pandemic-era market. Call it another froth marker — retail traders beset with mass psychosis amid zero-commission fees and zero benchmark interest rates — to be filed alongside the GameStop Corp. saga, the three-fold rally in cryptocurrencies, the SPACs that are minted daily and the record highs being plumbed by major equity indexes.“People start to look around and say, ‘What else can I do with my money?’” said JJ Kinahan, chief market strategist at TD Ameritrade. Rules regarding trading over-the-counter securities vary broker to broker, but they can be purchased on any of TD Ameritrade’s trading platforms for a fee. “Those would be one of the ones on the top of my list to say to people, ‘Please understand the risk that you’re taking going in there.’ I learned early in life, if there’s a lot of upside, there’s a lot of downside. People just might not want to tell you about the downside.”For anyone observing at a distance, it’s hard to understand how penny stocks of the moment are chosen. How does critical mass form around them? The universe of companies that make up off-exchange trading in America is vast, and they trade on lightly regulated quotation services where information is scant to non-existent. Like everything on the internet, it’s next to impossible to track down exact origins. But in trying to locate the spark, these types of…



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