1. The credit reports are free, if you remember to cancel the trial (big if!).
2. Consumers have been educated by the FTC that they can get a copy of their credit report for free once every 12 months, no strings attached… except they have to go to AnnualCreditReport.com, not FreeCreditReport.com.
3. Consumers are, knowingly or unknowingly, signing up for the trial service, getting their free credit score and reports, and then not canceling.

So, in early November, the Bucks blog on the New York Times wrote about how Senator Chuck Schumer of New York wants the FTC to force Experian to give you your free report and score before they ask for the credit card information. This was largely shelved because the CARD Act included a provision that required credit report services to include a disclaimer.

I understand the need to police overtly scammy negative option billing practices but how much intervention is too much? I think it was right for the FTC to force Experian to notify visitors to FreeCreditReport.com that they are not affiliated with the free credit report program. It’s also good that the site informs you that you are signing up for a free 7-day trial. It should also be clear that you will be charged for it after the trial because otherwise they wouldn’t ask for your credit card information! (to be clear, I’m fine with the regulation as it stands now… but I didn’t like Senator Schumer’s idea of forcing Experian to change their business practices in that way)

So at what point do we stop? At what point does common sense get completely thrown out and replaced with regulation? I’m curious to hear your thoughts on this.

With that in mind, here’s a glimpse at the top-performing penny stocks for 2010 – and a look at how we can use their attributes to fuel more gains this year…

We live in a world where a bevy of financial information is available to us freely if we’d only look. With a couple of keystrokes, anyone with the internet can look up detailed stock information on Google Finance, a sophisticated technical candlestick chart on Stockcharts.com, or up to the minute financial news on Bloomberg. That sort of access has significantly squeezed the gap between individual investors and the big boys on Wall Street – but the information itself isn’t going to pave the way to gains… you have to use it too.

That said, let’s take a quick look at the 10 best-performing penny stocks for the year so far, and try to see a common denominator that’s tradable:

Top 10 Penny Stocks of 2010

Jazztel (OTC:JAZTF) – Shares of this Iberian data transmission company spiked sharply in early February on speculation over a potential takeover.

Remy International (OTC:RMYI) – Aftermarket auto parts manufacturer Remy International saw shares dive in late December, only to be followed by a colossal rally in January.

Geospatial Holdings (OTC:GSPH) – this tiny pipeline management company saw shares make a big move back in February when the company was featured in Time Magazine, and again earlier this month when it made an appearance in Wired.

Graham Packaging Company (NYSE:GRM) – This $665 million packaging company saw its stock price move after a significant earnings release.

Somaxon Pharmaceuticals (NASDAQ:SOMX) – While tiny drug developer Somaxon has paid stock promoters to pump its stock in the past, this year’s pop was more above board – it was predicated on some FDA news on its newest drug.

China Swine Genetics (OTC:CSWG) – This bizarre Chinese pig breeding stock got legs – and the attention of traders – when it was featured on a prominent penny stock promotion website.

Wave Systems Corp. (NASDAQ:WAVX) – Like China Swine, this tiny semiconductor play got additional trader attention when it was picked up by penny stock promoters.

Tuesday Morning Corporation (NASDAQ:TUES) – This name should sound familiar to Sleuth readers… I put this play on our Monday Watchlist following a technical breakout. I hope you took my advice — the company has rocketed 122% since then.

RESVERLOGIX Corp. (PINK SHEETS:RVXCF) – This extremely volatile pink sheets stock has become a favorite of traders after its cholesterol drug got courted by some big pharma companies.

Wabash National Corp. (NYSE:WNC) – Wabash National, a small-cap truck trailer manufacturer got additional coverage after it signed a significant deal.

Connecting the Dots

Although these ten companies seem pretty different, there are a couple of dots worth connecting. For starters, each of them moved quickly on a catalyst that was difficult to predict. Who would have known that a major drug would get approved or that a company would see amazing earnings growth? But even though 2010’s top gaining penny stocks didn’t give many hints to investors, three things could have increased your probability of catching one of them.

1. Don’t Shoot for the Top Gainers

While it sounds anti-intuitive, trying to search out one of the top gaining stocks is a great way to lose your shirt in the market. That’s because these plays are volatile and they move quickly – in both directions. Instead, focus on getting repeatable moderate gains on a consistent basis, as we try to do each week with the Monday Watchlist. Making 9% in a week on a diversified basket of penny stocks is much more desirable than making 500% per year on a single risky play… Focusing on high-probability trades increases the chances that you’ll run into a top gainer on your own (like we did with TUES).

2. Stick With a Strategy

Be it technical or fundamentals-based, you need to have a strategy before, during, and after you make a trade. After all, it’s futile to try to bank consistent trades unless you have a system that works on a repeatable basis. This is perhaps the toughest step toward penny stock profits since not everyone has the financial acumen to piece together a trading system. Luckily, we’re here to help…

3. Look for the Telltale Signs for Gains

Even though the biggest gains are typically impossible to predict there are telltale signs that can help you find the stocks that are most likely to produce a big pop. First of all, focus on OTC stocks. While OTC plays may be a bit riskier than their exchange-traded brethren, they also accounted for 40% of 2010’s top gainers. Also, focus on industries, like pharmaceuticals or semiconductors, that are prone to big, fast news-based gains. And be vary weary of stocks that are being promoted by paid pumpers… There’s no question that finding the next triple-digit gaining penny stock is a tall order. With tons stock promoters pumping their latest clients’ stocks, small-time investors opining their latest trades, and brokers trying to nickel and dime you on commissions, it can be overwhelming. But by taking a look at penny stock plays that actually made massive gains in 2010, we can better prepare ourselves to make sizable gains in the future.

Let’s learn the lesson from this breakout, discuss another example of the “Popped Stops” and “Open Air” concepts, and be ready to apply this lesson in the next stock where it happens.

First, let’s set-up the scenario on the Daily Chart:

We see the aftermath of the breakout, but let’s step back and visualize the calculus as price tested the underside of the confluence resistance level of $160.00 per share.

Reference the previous lesson I wrote from the “Open Air Pockets Lesson in RIMM” for more insights into an almost identical situation, only RIMM used Fibonacci resistance levels instead of moving averages.

The main idea is that traders will short-sell a move into a confluence resistance area and then place stops on the opposite side of the level – in this case – above $160.  Perhaps they were playing for a target of the prior lows of $145 or lower.

However, those aware of the “Open Air” and “Popped Stops” concepts were able to see supply and demand more clearly and utilize “IF/THEN” logic to capitalize on an unexpected break above key resistance.

Once price breaks above the resistance level, triggering the stop-losses of the short-sellers and also triggering new “breakout” buy (long) orders of the buyers, then a “Positive Feedback Loop” or “Open Air Pocket” occurs which gives intraday and swing traders a distinct edge to play in this “air pocket” breakout price move.

For reference, the $160 level was a convergence of a prior price support level (black line) and the 50 day EMA (along with being “round number” resistance).

The IF/THEN statement would go like this:

“The expectation is that GS will hold resistance and swing lower, but if buyers push price into the ‘pocket’ of stops, THEN we could see a quick positive feedback loop develop that thrusts prices higher in a tradeable set-up”.

And that’s exactly what happened:

Price busted above $160 then $161 then $162 on a surge, creating immediately a new volume and momentum high along with a “go long” signal to play the breakout for those intraday traders who were bold enough to tackle this breakout set-up – a bust above key resistance.

The chart above is one of the best examples of the “Positive Feedback Loop” of how price ’sliced’ through the Air Pocket above a key resistance area.

By “Positive Feedback Loop,” I mean that buyers are buying, driving prices higher which triggers more stop-losses of the sellers, which also drives prices higher, as momentum traders jump on board, buying – pushing price higher, triggering more stop-losses from the sellers, and so on.

Even if you don’t take advantage of these situations – it is an aggressive/bold move – then at the minimum, you should NEVER try to fade or short-sell a market caught in a positive feedback loop.

There’s no way to know how far a market will rally while in this breakout/momentum mode, so the safest play is to trade in the direction of the breakout until you see crystal clear indications – such as trendline breaks or lower timeframe EMA breaks – that the momentum is slowing (seen by a negative divergence) and price could reverse.

Even still, price continued rallying higher despite a negative volume and momentum divergence, which underscores the power of this ‘breakout’ mode.

• to take profits once a level is reached,
• to consider shorting if price finds resistance at a level,
• to signal the “all clear” to continue trading long once a resistance level is broken to the upside

Here are the retracements from the 2007 market top to the 2009 bottom:

Dow Jones:

S&P 500:

NASDAQ:

Russell 2000:

Fibonacci Levels are not magic, but sometimes they can create little “self-fulfilling prophecies” when price comes into one of these levels.

These charts can serve as a permanent reference of the dominant retracement levels going forward… but do note that the NASDAQ and Russell 2000 have exceeded the upper 61.8% retracement in a bullish break.

It would be a strong bullish argument for higher prices if these indexes can hold above these levels.

Why Sallie Mae?

I’ve been racking my brain to come up with an explanation of why Sallie Mae has started to offer banking services and I was at a loss until I remembered one key insight – most consumers, until recently, were completely unaware of high yield online banks. It wasn’t until Ally Bank made front page news that online banks started to get respect and awareness for your average consumer.

It’s easy for “us,” readers and producers of personal finance blogs, for us to forget that because we get a daily dose of it. If you mentioned “reward checking accounts” to some of your friends, I bet you’d see some puzzled looks. Ultimately, I think Sallie Mae is leveraging their connection with students and parents to bring even greater awareness to the consumer.

Upromise 10% Bonus

If you use Upromise, you can get a 10% annual match on your earnings if you satisfy these conditions:

You must link your High-Yield Savings Account to your Upromise Account and, within 90 days of opening your High-Yield Savings Account, either: (1) set up an Automatic Savings Plan with a monthly deposit of $25 or more, or (2) fund the account with $5,000 or more. Upromise will match 10% of your Upromise earnings posted as ”funded” to your Upromise Account during the calendar year of January 1 through December 31. Your 10% annual match will be deposited into your High-Yield Savings Account in February of the following year provided that both accounts remain active and are in good standing at the time of transfer.

The Upromise bonus, a partnership that makes sense, is the differentiator for this account. If you earn a lot from Upromise, this normally dull 1.35% APY might be much much higher once you factor in the 10% bonus. If you don’t, then this account doesn’t really offer much else.

Pedestrian CD Rates

Their CD rates are competitive with the best CD rates but they’re not rate leaders (but they aren’t rate laggards either):

• 12 month – 1.50% APY
• 36 month – 2.20% APY
• 60 month – 3.00% APY

There are no minimum balance requirements on CDs and standard fees for closing a CD before maturity (3 months interest if it’s a 12 month or less CD, 6 months interest for CDs over 12 months). Pretty standard stuff.

Account Fees

While there are no monthly fees and no minimums, there are fees associated with the account, set out in the Fees and Charges section of the Terms & Conditions:

• Excessive Transaction Fee – $10 (The “Truth-in-Savings” section applicable to your Account(s) sets forth transaction limitations.)
• Returned Deposit Fee – $5
• Paper Statement/Statement Copy Fee – $5 per statement

If you do open an account, be sure to avoid excessive transactions (more than 6 transfers a month) and request paperless statements.

What are you thoughts on this account? I’m especially interested in hearing from people who use Upromise a lot to get a sense of how much they’re earning in a calendar year. If the most active people are earning $1,000 a year, then an extra $100 is going to be great. If most people are earning $100 a year, then $10 is… eh, so so.