Speculative Dollar
Volume Nears Decade High
Each month, the Nasdaq exchange reports on
trading activity in the most speculative sector of the market, for
stocks that trade Over The Counter (also known as "pink sheets" or penny
stocks).
In April, there was a slight dip in
activity in terms of share volume and the number of transactions, but
the actual dollar volume of stocks traded increased by 11%. For
stocks in the Nasdaq Composite index, though, dollar volume decreased by
8%.
As we often do, let's look at the ratio of
speculative OTC volume to less-speculative Nasdaq Composite volume, in
terms of actual
dollars traded.
For April, speculative volume was about
1.2% that of the Composite. That doesn't sound like much, but it's
close to challenging the decade-high of 1.4% that we saw in February of
last year.
It's always good to get a longer-term
perspective, so the second chart shows the data zoomed out the furthest
we can go, to 1995. Now it doesn't look quite so ominous, as
speculative volume was consistently above the current level of 1.2%
without much of an impact on stocks. It wasn't until the
percentage hit 2% or so that we saw the uptrend take a breather.
Also making the data less worrisome is
that overall share volume and the number of transactions both decreased
in April from March, so it's not like there was this huge rush into
"lottery ticket" stocks. We'd consider the dollar volume ratio to
be a minor negative for stocks given the behavior over the last decade,
but with a low priority level.
