There was a lot of pain in the stock market this week shaving over 500 points off of the TSX.  The market may continue to correct down to the 10,600 level next week.  It’s expected to be another march downward in the coming weeks which means we all need to continue to sharpen those pencils and continue to do the due diligence to find the stocks that have been too badly beaten up over the past couple weeks.

Today, though I want to talk specifically about MagIndustries (MAA.TO), what happened and how to play it. In a previous post I had mentioned that it didn’t look like things were going to settled by the end of October deadline with Sinohydro and to take off your position.  Sure enough, a news release came the very next day stating that the MOU signed between the two parties had extended until the end of November.  The selloff then began, dropping the share price by 4 cents after the news and losing another penny in Friday’s trading.  But don’t count out MAA yet, there’s still potential. Keep MAA on your watchlist, I know I will be.  The market has begun discounting this news item although it’s really just a road bump and many people see this deal as a continuing positive, just a delay in the process.

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Here’s how I’m going to play this:
– Wait for a new base to form.  This will likely happen over the course of this next week.  Just in case it continues to sell off early in the week I don’t want to be too keen to jump into a new position.  But after range trading a few days I will pull the trigger.
– Buy the base.
– Trade the run up.  Although nothing is guaranteed in life (except death and taxes), there is a very good chance there will be a run up in the stock price in mid-November pending the news release of this deal.  Once this has reached a 15% gain (very achievable) it’s time to take part of the position off the table and let the remaining stock ride out the news release.
– When the news happens.  There’s going to be a decision either way.  If it’s bad news, sell. No matter what the loss, it’s time to cut and run.  Maybe start investigating GWG.V or ISD.V, maybe YNG.TO.   But if it’s a good news story expect another pop in stock price.  This will really make the stock a longer term investment.

My thoughts on the penny stock play of the week.  What’s your play?

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