Hey, what a surprise....not! The market's struggling to follow through after yesterday's 1.0% gain, Monday's 2.3% bounce, and Friday's small advance. Looks like four consecutive days of gains is too much expect. Still, stocks are up more than 3.0% since Thursday's close, though that followed a two-day, 6.1% plunge. Talk about volatility. Wait though - it gets crazier than that. For all the sea-sickening ups and downs you and I have suffered lately, you'd think we'd have actually gotten somewhere. Nope. As of today we're right back where we were two weeks ago, four weeks ago, and eight weeks ago. Monday's bounce is the seventh major reversal we've seen from stocks since the August 8th low (and I'm assuming today's weakness isn't a bearish reversal yet), and stocks are where they were priced as of August 5th. Amazing. While we've got a special education feature for you today (below), I first want to take a closer at the overall market since a lot of you may be wondering what to do here in this ridiculously-confusing environment. Before we even get to that though, I want to mention a new feature for our website... a 'How To' library of penny stock tips and tricks we're going to be building over the course of the next several months. Here's one of the first tips: Think you have a good feel for a stock trend's undertow? A closer look at Level 2 data may change your mind about how strong or weak that stock really is. Go there. Stock Market Still in a Trading Range As much as we'd like to be able to tell you all this zig-zag stuff is over and we're ready to start trending again (per our new timing focus we promised you in Monday's newsletter), we can't... because we don't think it is. Between an excessively bullish move this week with a bunch of bullish gaps left behind on Tuesday, it's just going to be that much tougher for the market to clear the same major technical hurdles it's been unable to clear since mid-August. For the S&P 500, that's the area between 1204 and 1220, though the Russell 2000, Dow, and NASDAQ all have the same basic ceiling to deal with. The X-factor is Friday's quarterly options and futures expiration on top of any window-dressing activity institutional investors need to get done before the end of Q3. That could spur any number of outcomes, but given how bad the quarter's been, the scales are tipped in favor of it hurting more than helping. Here's the thing - for the same reason the last three rally efforts didn't take off, we don't expect this one too either. On the flipside, none of the prior three bearish reversal efforts has been able to push stocks to new lows or into bear market territory either. Folks, we're still range-bound. That's it. It'll end eventually, but we don't think we're quite there yet. The clue to its end will be a move outside of the recent trading ranges. Anything else is just the media trying to lure you in to pump up ratings. So, our MO is the same: Bet against the market at near-term highs, and bet on the market at near-term lows. While we don't seem to quite be at that high point yet, it sure looks like the market's going to retest those prior highs again this week. That may be a good time to 'go contrarian' with a Russell leveraged short ETF or a put option (or whatever your weapon of choice is) for a short-term speculation, or even just as a hedge. Just sayin'. How to Spot Top Penny Stocks As I was doing some background research a few days ago on a penny stock - and reading some other traders' comments about the company - for some reason I was reminded of a handful of important lessons about the realities of penny stock speculating. Today I'd just like to remind you of the biggies. Yes, many of you guys (and gals) already know some of them, but I'm sure there's at least one nugget of gold in here for everyone. So, here they are, in a sequence for a reason. 1. As much as we wish it was the case, penny stocks rarely trade on fundamentals. Oh, traders talk about the potential fundamentals when they make their case for a stock, but sometimes those fundamentals are so far down the road (and pure guesses) they're almost pointless to worry about now. This can be good and bad. It's good for savvy traders though, because it means a company doesn't have to be a perfect investment right now to make traders money right now. This leads us to reality #2... 2. Much of the time, penny stocks move higher 'here and now' based on the perception of their future potential. So what's the difference between this 'perception of future potential' and 'potential fundamentals'? We'll answer the question with a question..... ever heard of a 'story stock'? These are stocks of companies that people want to own because of what the company is, or does, or is working on. The underlying potential fundamentals (good or bad) don't matter - it just feels good to be able to say you have a stake in the company. It matters because perception can be a much better bullish catalyst than numbers. 3. Awareness campaigns do work, but you have to be in 'em early. Through no fault of their own, small and micro cap companies and their related stocks just don't get any real media attention. To garner the attention that gets a stock moving, a company may employ an investor relations firm or promoter to help spread the word.... the 'story'. These are prime opportunities to ride what can often turn out to be a pretty big wave. That said, these awareness campaigns are something the SmallCap Network makes a point of telling you about when they look like they're just beginning. In fact, many of our 'Featured Stocks' are at or appear close to the beginning of a major investor awareness effort. If you can get out in front of these campaigns, you have a big advantage. 4. The technical clues of breakouts - whether or not they're prompted by IR campaigns - are usually evident, but you have to know what to look for. Nine times out of ten, the biggest clue will be volume. Specifically, the clue is unusual volume. There are bunches of different ways you can look for unusual volume, but in my experience, the simpler, the better. I run a scan every day that shows me OTC stocks with three consecutive days of gains made on daily volume that's 30% above the average volume on all three days. Sure enough, I find awareness campaigns have just begun with many of them. Even when it's not a paid PR effort though, I often find the bullish volume is starting to flow because a company has finally turned the corner and word is just starting to spread. That's just one of my approaches to spotting interesting volume changes though - you may have something better. You just have to apply it daily. The last word: No, these probably aren't the kind of lessons you'd learn if Warren Buffett were giving you his advice. Then again, Warren Buffett isn't trading penny stocks. His holding period is 'forever', where ours is only a few days. Different goals require different strategies.