Saturday, September 16, 2006

Expect BIG Gains on the OTCBB Soon!

Hey guys, Dan Holtzclaw here, aka the "Stock Doc". Just in case you don't know me, I am the author of the Best Selling Book "Penny Stocks: The Next American Gold Rush" and the newly released book titled "The Little Black Book of Microcap Investing" available at www.microcapbook.com and at Amazon.com I am new to the PennyMarkets Blog. My goal is to give you folks a different spin on microcap stocks.

From my years of observing the markets, I am convinced that the majority of OTCBB and Pink Sheet investors come from NASDAQ minded individuals. This makes sense as those who invest in the NASDAQ tend to be tolerant of stock volatility and more apt to invest in lesser known equity securities. If you compare charts from the NASDAQ and OTCBB you will see that OTCBB activity tends to parallel NASDAQ activity. As I have postulated before, when times are good on the NASDAQ, it is my belief that investors often take some of their profits and stick them in OTCBB stocks. This was clearly evident in 1999-2000, when both the NASDAQ and the OTCBB were at their peaks, and may be happening again now. As I am writing this, the NASDAQ is approaching levels that have not been seen since 2001. When the NASDAQ made steady gains for the majority of 2003, dollar trading volume for the OTCBB followed suit a few months later. Again, it is my belief that most investors first make their money on the NASDAQ and then stick some of it in the OTCBB…hence the delay between activities amongst the two markets.

Take a few minutes to compare the charts of the NASDAQ to OTCBB dollar volume statistics. The OTCBB website contains data on market statistics for the over the counter market. In the market statistics subheading, you can find information on share volume, dollar volume, total transactions, etc. I personally don’t like the charts provided on the OTCBB website, so I download the data into an excel spreadsheet. This allows me to create various charts for comparison and analysis of market trends. When looking at OTCBB market data, I like to look at total dollar volume to get a feel for overall market conditions. Dollar volume lets me know the “pulse” of the market. It is real data. Total share volume can be misleading because you don’t know the price at which most tradable OTCBB stocks are moving. For example, a one cent stock may trade 2 million shares in a single day, but that only translates into $20,000…chump change for most large market stocks. The bottom line is how much cash is entering the market. More investors mean more money entering the market. More investors and more money means that more stocks are going to move. More stock movement means more opportunity for trading activity. More trading activity means more opportunity to make money with a stock. Can you see the value of monitoring total dollar volume?

While OTCBB dollar trading volume gains tend to lag slightly behind gains in the NASDAQ, decreases in the NASDAQ influence the OTCBB much faster. When times are bad, investors tend to eliminate their riskiest investments first. As such, if the NASDAQ is declining, the first things to go for most investors are their OTCBB investments. This trend was clearly evident for most of the year 2005. From January to May of 2005, the NASDAQ took a breather and experienced a general downtrend. As this occurred, investors likewise withdrew from the OTCBBand dollar trading volume declined. From May to July of 2005, the NASDAQ once again surged upwards and, as expected, OTCBB dollar trading volume began to follow suit. Unfortunately, just as the OTCBB began its positive dollar volume run, the NASDAQ once again corrected and the OTCBB rally died. From August to October of 2005, the NASDAQ experienced a minor correction and, as expected, the OTCBB lost dollar volume. In general, 2005 OTCBB dollar volume was mired in a downward trend generated from the January-May and August-October NASDAQ corrections.

It is well known that the markets are very cyclical in nature and my observations of the parallels between the NASDAQ and OTCBB can create opportunities for “timing” investments in bulletin board equity securities. For example, from November 2005 to mid-April 2006, the NASDAQ enjoyed very substantial appreciation in value. In December of 2005, I noted that the NASDAQ was in the second month of a positive run and I expected the OTCBB to soon follow suit. The OTCBB hit a low point in dollar trading volume in December 2005 and then recovered explosively. From its December 2005 low to early April of 2006, dollar trading activity for the OTCBB improved by nearly 150%! When this occurred, a number of bulletin board stocks experienced amazing gains. As a matter of fact, a number of OTCBB stocks achieved quadruple digit percentage gains!

Look at the recent activity of the NASDAQ. From May to mid-July of 2006, the NASDAQ was in a steady decline. During this time, as I have clearly shown, dollar volume for the OTCBB quickly followed suit. From May 2006 to July 2006, dollar volume for the OTCBB dropped by nearly 50%! Now for the good news. Since mid-July, the NASDAQ has enjoyed appreciable gains of nearly 10%. Likewise, beginning in August 2006, the OTCBB began to follow suit and dollar trading volume improved by about 15%. As gains for the NASDAQ have been extremely sharp from mid-August until now, I expect that dollar volume for the OTCBB will increase dramatically, possibly to levels similar to March-April 2006. More money coming into the OTCBB means more trading activity and more opportunity for big gains!

The point I am trying to stress is that the OTCBB activity tends to parallel that of the NASDAQ. Use this information to your advantage! People always ask, “How do you determine when to buy and sell a penny stock?” Well, this is one way to do it, especially if you are swing trading.

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