Chart of the week: A bubble in a tea cup

Cynk share price chart

Wall Street is abuzz with talk of Cynk, a stock that soared by 25,000% in a few months before trading was stopped by regulators.

The company floated in June for a few pennies, and last week hit a high of more than $20 a share. Yet, the self-described social networking business has no assets, no revenue and one employee. A sign of a bubble in tech stocks?

US stocks certainly look expensive. But despite the social media link, this isn’t a tech-mania story – it’s more a warning on the dangers of being sucked in by obscure penny stocks.

Cynk traded in the opaque, high-risk, over-the-counter market in America, where thousands of small firms operate with little scrutiny. Trade volumes are tiny, so just a few trades can light a fire under a stock – or send it crashing back down.

That makes such stocks prone to manipulation – Cynk’s surge seems to have been orchestrated by a clever Twitter campaign – meaning careless investors can easily get their fingers burned by the huge price rises and falls.

Merryn

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