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The news reports this morning of a new domestic terror threat have the security plays running again in premarket trading, especially in the video surveillance space. The likelihood of an increase in the threat level from its current "elevated" status, has affected the usual list of security stocks --
), car wash company turned security play
. (Yes, the same IPIX we highlighted yesterday that generates less than 1% of its first-quarter sales from security products.)
All four stocks share the same velocity characteristics that can cause rapid price changes: small float, huge volume and positive industry news.
We view these premarket gains as unsustainable and would warn you that when these stocks lose their steam, like they did in mid-April, it happens in a heart beat. The decline often sweeps through faster than the updraft and with these moves being driven by day-traders now, the risk/reward is not very attractive. It's nearly impossible to game terror threats and when they will occur. The easy money has already been made in these four stocks this year, which is why we think they should not be bought this morning.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider Digital Recorders, Mace Security, Magal Security and IPIX to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.