"Penny stock investors all made exponential returns on their money within a few days, and then short sellers like me cleaned up when their unsustainable run-ups crashed 40% to 70% within a few days," said Sykes, a Miami-based entrepreneur, stock trader and penny stock expert.
Marijuana-related companies, such as GrowLife (PHOT), Cannabis Science (CBIS) and Medical Marijuana (MJNA), are traded on the Over The Counter Bulletin Board (OTCBB).
"Experience teaches me there will be more waves based on breaking sector news in the coming weeks and months," Sykes told MainStreet.
Marijuana stocks are rapidly catching the attention of Wall Street as restrictions loosen for the cannabis industry nationwide.
"There are a number of stocks out there but at this stage the valuation of those companies can be driven more by investor excitement than by actual value added, which is why you see wild fluctuations when the marijuana industry is heavily featured in the news," said Justin Hartfield, Orange County-based CEO of the Emerald Ocean Capital private equity firm.Because the sector has experienced so much media hype, penny stocks have doubled and even quadrupled since January 1 when Colorado legalized the sale of cannabis.
For example, Advanced Cannabis Solutions (CANN) started the year at $3.25 a share and is now trading at $15.85 a share.
"That's a 388% increase in two weeks," Sykes said. "Applying simple technical analysis to buying a marijuana penny stock involves finding those that are breaking out above previous highs to dramatically increase the odds of profits for investors."
But along with fat rewards comes risk.
"Nowhere else in the stock market can you find such returns as with penny stocks," said Sykes who wrote the book An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund (BullShip Press, 2007). "Investors just have to be sure to lock in profits along the way during the run-ups and not fall in love with any of these stocks for too long."