MGT Capital Investments Penny Stock Squeeze

TM editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence.

I saw the news on May 9th on USA Today and on Fortune “John McAfee is back in business“. Hindsight is always 20/20, and in hindsight, I should have backed up the truck and loaded with as many shares of MGT as I could afford! Hindsight always makes things so clear! In all seriousness, I knew that anytime you see a penny stock company making the front pages it’s going to be a big mover. It just attracted so much retail interest with the PR of McAfee coming back. McAfee, a pioneer of virus scanning software, founded McAfee Associated in 1987. The company was later sold to Intel, and is now branded as Intel Security. McAfee amassed a fortune in excess of 100mil at his peak, but suffered losses in the late 2000’s during the global recession. As of 2009, McAfee’s net worth had dropped to 4mil according to a NY Times Article. On May 9th the news was posted the McAfee would lead MGT Capital Investments (NYSE: MGT) as the new CEO and that the company would change its name to John McAfee Global Technologies Inc. This sparked a surge of buying that propelled the stock from 42 cents on May 9th to nearly $6.00 per share on May 18th.

Recent Penny Stock Squeezes

For seasoned traders, MGT is just the latest penny stock to surge on a strong catalyst. In recent memory we’ve seen 500-1000% runs from DGLY (maker of Police Body Cameras) LAKE (maker of Ebola BioHazard Suits) KBIOQ, and VLTC. The surge in MGT Capital represents the markets natural tendency towards irrationally strong, or irrationally weak price action. We often see strong catalysts result in almost unthinkably extreme moves. The market is self correcting, and today shares of MGT pulled back from a high of $5.58 to a low of $2.27 for a 60% drop. Despite today’s drop today, the stock is still up over 600% in the last week. I expect today’s strong sell off will mark the peak of the breakout and will allow shares to normalize at a price somewhere between the $1 and $3.00 price range. While it’s true that some stocks squeeze out of the penny stock range only to fall back into the pennies, most stocks with a strong catalyst, like MGT Capital, find a price somewhere between the initial breakout and the high of the parabolic move.

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