WUHN: One day wonder

Wuhan General Group Inc. (WUHN), was pumped last night and early this morning by Penny Stock St★r (Tribeca Investments Ltd.) and Marquee Penny Stocks (MHC Inc.). Both entities claimed not to have received compensation for the promotion. In conjunction with this pump, Equities Awareness Group LLC, another pumper, released a press release which could be seen on yahoo finance. The PR featured WUHN along with several other promoted stocks that also had big moves today (MKRS, PIEX, GMEC).

Since neither promoter was compensated with shares, there wasn't as much selling pressure and the price actually held up reasonably well throughout the day. Unfortunately for the followers of the newsletter, the stock gapped up around 350% making the potential for further upside rather dismal. In fact, the high of the day was hit just 35 minutes after the open and showed few signs strength for the remainder of the day.

Despite the fact that the average trader wasn't given a very good opportunity to make money on this stock, the promoters can still call it a job well done. Now they get to brag about their 1,034% intraday profit (which they have in after-hour emails) as well as post a little badge on their website saying they alerted the ticker before such a big move. As you might have gathered, the purpose of these uncompensated pumps is less geared towards making money and more towards building a following of gullible traders. The lazy trader who didn't do their research might read those celebratory emails and decide to invest lots of money into the next pump by Tribeca and/or MHC, with dreams of their money being increased 10-fold. Such reasoning is dangerously flawed and will more likely than not result in a large loss.

For one, future picks by these pumpers will likely be compensated which significantly alters the price action of the pick due to promoter/insider selling. As such, the performance of an uncompensated pump cannot and should not be used as a predictor of performance for compensated picks even from the same promoter. Furthermore, and as we saw today, the intraday percentage gains of these pumps are highly misleading. In reality, the stock only uptrended for a small fraction of the day making it difficult to sell for a profit.

Even if you're familiar with the risks of pump and dumps, these sorts of promos can be dangerous to short sellers. The huge gap up was attractive to shorts and shares to borrow seemed to dry up close to the open around the 0.25 level. Those who shorted that low had to sit through a terrifying squeeze up to 0.45 and are still underwater at this point. Since uncompensated pumps can run so wildly and may not be subject to a catastrophic dump in the near future, there is a whole lot more to lose than to gain with these sorts of plays.

To summarize, read the disclaimer at the bottom of the pump emails/alert pages and be aware of the dangers that uncompensated pumps pose, both for longs and shorts.