the pump and dump

I love getting "pump and dump" penny stock alerts. Call it a financial guilty pleasure but there's something truly comical about the cheesy marketing and the god-awful writing that gives it an air of genius. Case in point is an email alert I received from, well, let's just call him "Bob the Penny Picker." Bob assures me that his next great pick is a company called Endocan Corporation, ticker symbol ENDO. Why Endocan? According to Bob, "There’s a very strange thing happening around medical cannabis plays lately. You might have noticed it but if you haven’t here it is: Medical cannabis plays are now flying off the shelves faster than you can blink! The bad news is that as soon as they hit the scene, traders rush in and before long, you can’t afford to buy one. The good news is that I have found a company that is ready to move north and at current levels, it is affordable. Actually, it is so cheap you’ll wonder if it’s real."

A cursory look at its technical chart reveals this :

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Bob is certainly right about something : the stock, at $0.09 a share, is cheap. It's damn cheap! And you know what? It's getting cheaper. A lot cheaper! So cheap, in fact, that shares will fall to about $0.03 a share. May not sound like much of a loss, but when a stock is already at such a nominal "discount," a 6-cent loss is the equivalent to a 67% haircut.

How can I be so sure this is a bad deal? Because pump-and-dumpers don't trade the math ; they trade the stories and stories can be awfully misleading. But the real giveaway is the chart pattern. As soon as I see this, I run. I don't even think about it. I just run. I run like investors should have run from VeriSign Inc. when shares were trading at $260 in the crazy days of 2000.

Pull up a historical chart and compare the two. Then make your decision.