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Microcap & Penny Stocks : Rentech(RTK) - gas-to-liquids and cleaner fuel -- Ignore unavailable to you. Want to Upgrade?

To: John S. Baker who wrote (6182)	7/17/1998 1:13:00 PM
From: Micropicker	Read Replies (4) \| Respond to of 14347

Widening Spreads. Savvy investors can skip this unless they have a few free minutes. A spread can widen for a number of reasons. 1. After a stock has run up, the MMs aren't sure if it will keep going up, or if it will start to plunge downward. The MMs don't want to sell the shares cheap if the stock keeps going up, but will be afraid to buy after a run up fearing they will be stuck with a pile of stock just when the price is dropping. In some cases, this is complicated more if a MM doesn't have inventory and sells shares into the run up anyway. 2. On thinly traded stock, you usually have a wider spread. Often, when there is more activity, the spread will narrow. Even if the price doesn't change, once volume slows, the spread will widen again. This could also apply to stock with a limited number of MMs. 3. News on the horizon. Often if there is news expected on a stock, the MMs will widen the spread ahead of that news. This could continue a while after news is released as the MMs wait to see the reaction. You see this often just before earnings are released. The MMs don't want to get caught if the news causes a big upturn or downturn. 4. This case may be closer to RNTK's story. The spread will narrow when one or two MM's are either trying to buy or sell a stock. They will set their bid or ask more favorably than the other MMs. Once they have bought or sold enough, they will set their price back to the price offered by other MMs. Not all MMs are sitting within 1/32nd or 1/16th of the current price. Some are sitting with bids of 1-1/4 or asks of 1-3/4. They don't want any action. In normal trading, without news or a run-up, I doubt RNTK will see a spread of more than 1/16th. Again, Level II is a big help looking at spreads. You can tell which MMs are sitting at the bid and ask, and what the prices are from the other MMs. If only one MM is selling at 1-17/32nds, and the rest are at 1-5/8ths, then you can expect the ask to rise when that MM has sold enough. If 4 or 5 MMs are sitting at 1-17/32nds, then it will take much longer and require much more volume to raise the ask. With Level II, you can actually watch as the MMs are peeled off of 1-17/32nds and move the ask to 1-9/16th. When only one MM is left at 1-17/32nd, it is usually a sign that the ask will go up soon. Without Level II, spreads are more of a trailing indicator. You can't predict them; you only can react to them after they change. If a stock has a wider spread in a run up, I usually watch the bid. If it goes up and the spread narrows, then the MMs want shares and the ask is likely to increase soon. If the bid drops, it's already too late to sell at the top. You can still watch the ask, and if it starts to drop, chances are the bid will drop as well. Because you don't have Level II, this method is still guessing and only improves your chances. I've often saved a 1/16th here or there by watching this closely. It still takes experience and luck to tell the difference between a buying opportunity on a dip, or the beginning of a serious drop in price. (And conversely a temporary blip upward or the beginning of a major uptrend) But then again, due diligence is the mother of good luck. Good luck to all that made it this far!