TM Editors' Note: This article discusses penny stocks and/or microcaps. Such stocks are readily manipulated; do your own careful due diligence. 

If you've followed the overall trend in the stock market this year, a lot of it centers around retail traders and new market trends. Everything from blue-chip stocks to penny stocks have become a target for the new Reddit army. Obviously, it began when stocks like GameStop (GME), Nokia (NOK), and others took flight in January thanks to retail traders flocking to social media and getting behind several stocks facing heavy short selling by Wall Street funds. While the mom-and-pop trading community was typically referred to as "dumb money," the market had no choice but to begin to take it seriously. 

Why? Simply put, these traders were driving market momentum. What have now become known as Reddit stocks, these massive short-squeezes sparked new interest in the broader markets. Fast-forward to the second quarter, and the newest cryptocurrency surge has added some extra fuel to the fire. Everything from bitcoin mining stocks like Marathon Patent Group (MARA) and Riot Blockchain (RIOT) to NFT penny stocks like Hall Of Fame Resorts (HOFV) and Cinedigm (CIDM) are gaining ground. But it doesn't just focus on high-volatility sectors like crypto. We've also seen a boost in generally lower float stocks. 

Take, for instance, MicroVision (MVIS) earlier this week or Brooklyn Immuno Therapeutics (BTX) on Tuesday. When social media rallies behind certain stocks, the trend has become very clear. In the case of MVIS and BTX, both were previously trading as penny stocks. This week both surpassed levels of $25. BTX jumped over $30 at the time of this article. Aside from news from both companies, retail traders have come accustomed to buying shares of companies like these and, more or less, expecting breakouts to ensue. While it hasn't always happened that way, there are plenty of examples of where it has. Some groups are even biting off of this trend, suggesting certain stocks/industries may be the target of social media trading when, in fact, it's the furthest from the truth. In the first quarter, silver stocks were part of the "fake-out breakout"  when some news media outlets said Redditors were targeting that sector next. Subreddits like r/WallStreetBets fired back and flooded their discussion board with posts refuting those claims. Ultimately, a short-lived move would happen in silver, but nothing to the extent of where GME, KOSS, NOK, EXPR, and countless others had experienced. 

Where Are Retail Traders Looking Next? 

This is the question for the ages. With markets back in bullish trends, the general tailwinds coming from strong earnings and economic figures have given this retail niche a nice boost recently. This week, the trending stocks on Reddit aren't necessarily the infamous "penny stocks" we've seen jump earlier this year. It would appear that aside from MicroVision, Clover Health (CLOV) and Palantir (PLTR) have gained ground. While PLTR continues making attempts at breaking through its 50-day moving average, Clover has seen an explosive move over the last week. 

If you look at the stock chart, you'll see that since April 16th, CLOV stock has climbed more than 50% so far. This could be a big quarter for the company as well. In a few weeks, the company will report its first-quarter 2021 earnings results. If you haven't followed the story behind CLOV, you likely missed the major controversy it faced earlier in the year. Hindenburg Research reported in February that Clover "failed to disclose" a Justice Department investigation into the Clover's business practices and operations when it went public. The company also accused major backer Chamath Palihapitiya of misleading investors when he "promoted" Clover Health. While the stock is well above its 2021 low, it's still quite far off of its January highs. This upcoming earnings report could be a proof-point for the company and a line in the sand for supporters of Clover. That is if results reveal details refuting Hindenburg's accusations.

Are Reddit Penny Stocks Off The Table?

Just because boards like Wall Street Bets focus on higher-priced stocks, it doesn't suggest that all penny stocks are off the table right now. In fact, many of these stocks under $5 continue trending among social media communities. Many haven't gained as much notoriety at this point, but the moves in the market seem to speak for themselves. This week, subreddits like r/PennyStocks and r/RedditPennyStocks have followed trends in cheaper names. Wednesday saw shares of companies like Alpine 4 Technologies (ALPP) and Labor Smart Inc. (LTNC) caught a nice move in the market. Both of these are OTC penny stocks. I mention this because many companies that are the focus of Reddit traders typically trade on major exchanges like the NYSE and Nasdaq. 

Needless to say, both have reported new updates this month. Alpine was the most recent and announced this week that its subsidiary,  A4 Defense Systems, Inc., entered into a definitive purchase agreement to acquire Thermal Dynamics International, Inc. According to the press release, the two expect to meet the closing conditions of the agreement by  May 17th. 

Kent B. Wilson, the CEO, explained that "The formation of A4 Defense Systems, Inc. was in response to the growing demand from our  A4 Aerospace, Inc. holdings to have a bifurcated platform to extend our offerings to the growing needs of the US Federal Government and its allies. While TDII is a non-aerospace acquisition for us, it does put us firmly in bed with the US Federal Government. For the past 34 years, TDII has been a pillar of support for the  Department of State and its complex embassy and consulate system worldwide. The company, on average, generates between  $9 million and $13 million in annual sales...Over the next 18 months, the ALPP and TDII management teams will enact several capital purchases that will allow TDII to grow in excess of  $50 million by the end of 2025."

This news helped spark a continuation in the recent multi-day uptrend in the penny stock. Over the last 6 trading days, ALPP shares have climbed more than 100%.

Risk Versus Reward

All stocks and investments carry risk. This we know. But especially when the hype has played a factor in the move a stock makes, it's even more important to understand the higher risks that may be involved. Just as quickly as the excitement helped boost shares, it can die down with a breakdown to follow. If you look at many Reddit stocks from earlier in the year, you'll see this trend was very apparent.