OVER-THE-COUNTER VOLUME

OTC Share Volume  OTC Dollar Volume  OTC Transactions

APPLICABLE TIME FRAME(S):  

INTERMEDIATE TO LONG

UPDATE SCHEDULE:

Monthly

REPORTING DELAYS:

Between a few days and a few weeks.

EXPLANATION:

There are an untold number of ways to speculate in the stock market.  You could buy far out of the money call options, hoping a stock gets bought out.  Or you could leverage your account and sell short S&P futures, counting on a market crash. 

Either way, essentially what you’re doing is buying a lottery ticket with slightly better odds.  One of the most time-honored speculative endeavors, though, doesn’t involve leverage or margin...it is buying penny stocks.

Penny stocks go by several different names, such as Micro Caps, Bulletin Boards or Pink Sheeters, depending on how old the person is talking about them.  They’ve been around forever, and are simply those stocks that have publicly available shares but the companies do not meet the listing requirements of major exchanges like the New York Stock Exchange or Nasdaq National Market.

Typically these shares are very low-priced, usually under $1 (thus the moniker “penny stock”) but not necessarily so – some trade at prices as high as $5 or even $10.  Most brokers allow you to trade the shares with no special suitability hurdle, though some do require such a thing.  The stocks tend to be extremely illiquid and are a hotbed of pump-and-dump and other stock manipulation schemes.  It is an area best avoided by nearly everyone.

Listed companies are not exempt from corporate fraud, as we’ve seen ad nauseam over the past few years.  But the companies are higher-profile and the investors tend to have more at stake in terms of fiduciary duty.  Just by the virtue of being listed, most of them have higher volume and are thus less likely to suffer from stock manipulation raids.

So when we see investors concentrate on stocks that do not enjoy those benefits, and instead have a high degree of risk on several different levels, we can conclude that there is a desire for speculation.  Excessive desire to trade these lottery tickets should be a sign that things have gotten too far out of hand, and for the most part that tends to be the case – near market highs, we see extremely heavy penny stock volume, and near market lows that usually dries up.
 

GUIDELINES:

Penny stock traders are some of the most speculative in the entire market.  Therefore, when we see them become overly enthusiastic in their profession, we want to become more defensive ourselves.  Speculative fervors tend to blossom near the end of bull runs, so when we see OTC volume spike higher, it's usually a sign that optimism is running too high and investors are willing to take on too much risk.

On the other hand, when OTC volume dries up and these gunslingers leave the market, we often see a market low form not long afterwards, as it's a sign that pessimism has reached an extreme.

In either case, we want to look for multi-year highs and lows in the OTC volume figures to gauge what kind of speculation is currently en vogue.

OTC SHARE VOLUME STATS:

OTC DOLLAR VOLUME STATS:

OTC TRANSACTIONS STATS:

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