What is “Passive Income Trader?”

By Travis Johnson, Stock Gumshoe, September 10, 2013

No big stock “reveal” today, but perhaps our blatheration will be of some interest anyway.

We’ve had a number of readers write in asking about a heavily promoted trading service called Passive Income Trader — this is a service that’s been around for a year or two, as far as I can tell, and they’ve even placed ads on our email newsletter a couple times, but I’ve never listened to the presentation before.

So today, I jumped in to check it out a bit. Reluctantly, because this is one of those ads that doesn’t come with a handy dandy transcript … so I had to listen to the whole blessed thing to see what details they shared.

I don’t often cover trading services that are pitching a strategy, particularly a rapid-trading strategy, because I’m not an active trader and tend to default to my bias for long-term investing when I look at these quick-hit services. But here goes …

The pitch is from a guy called Sam Johnson, who is apparently the trader who “discovered” this trading strategy for profiting from “parabolic moves” in individual microcap stocks. I presume this is a pseudonym, since unlike most of the Market Authority (that’s the publisher) newsletter personalities he shares no picture (they do have some real and experienced newsletter writers, FYI, they publish letters from Charles Mizrahi and Ian Cooper, both of whom I’ve covered in the past in their work with other publishers).

Sam starts out by building a perfectly reasonable case for the existence of parabolic moves in different markets (tech stocks in 1999, gold in 1979, housing in 2006, etc.), and then saying that he can help you profit from these kinds of parabolic moves.

He does that by grossly simplifying the situation (also pretty common in hyperbole-filled teaser pitches), and by making the connection that parabolic moves of large sectors over months and years are similar to spikes in individual microcap stocks over a matter of days:

“Parabolic moves are caused by the exact same thing: a story …

“Parabolic moves in assets happen when large groups of investors buy into the story”

He then makes comparisons to the tech boom of the late 1990s, when every cab driver was also a day trader, and to the housing bubble when you were starting to wonder whether you should move to Miami and start “flipping” condos for quick profits — he could have gone all the way back to the tulip mania or the gold rush, I guess, and there is certainly a tendency in human nature that creates bubbles of “I don’t want to miss out.” I won’t argue with the existence of story-driven bubbles, whether large or small, we see them every day.

But this is essentially a rapid trading service we’re talking about — the “passive” part comes from the fact that they issue roughly one trade alert per month, you put in your buy and immediately also put in your sell order for the target price, and you’re done. Assuming the stock gets to your price and is sold. So how do you profit from a parabolic move in a little tiny stock?

“You get rich by getting into assets BEFORE the stampeding crowd … and by getting out of them at the start or middle of the parabolic move that comes right before the inevitable crash. That’s why what I’m about to show you works so well.”

“I found something that happens every month or so that creates a big market story in a small sector. This event causes quick, bubble-burst cycles to happen like clockwork. So I just invest in the start of a parabolic move, sell before it peaks and walk away with 22.6 percent profit on trade after trade. And totally avoid the bust at the end.”

This thing that happens “every month or so” is a catalyst that drives a specific stock — but it’s not a catalyst that generally has anything to do with the stock itself.

“I found a source of stocks that have gone up in price 94 percent of the time when a very specific catalyst event triggers… when this catalyst event hit, it caused more than half of these stocks to shoot up more than 100 percent.”

“… this catalyst triggers on one stock every month … you could see it trigger on the specific stock within minutes of it happening, while the price jump happens over the course of several days, even weeks.”

“What’s the catalyst? Stock promotions… they are PR and marketing campaigns designed to get investors to buy and hold into a stock (something you should never do with these stocks, as you’re about to see).

“There are hundreds of stock promoters, but only a couple of ‘big fish’ who consistently drive a stock price through the roof with their promotions” …

“Investors who fall for these promotions think they’re going to cash in on the ‘next great Shale oil find’ or ‘the next Groupon’ or whatever. That creates a smaller version of those parabolic moves we saw in the U.S. housing market: gold in the 1980s and the NASDAQ during the tech boom….”

So, yes this Passive Income Trader is a service t