Trading activity in the penny stocks arena is recovering after a solid decline in the second half of 2008. OTCBB dollar trading volumes in the first four months of 2010 have nearly equaled the beginning of 2008 levels. Moreover, the trading volumes are poised for future growth driven by optimistic economic outlook and bullish investors’ sentiment.
Comparing the charts from the NASDAQ and OTCBB we see that OTCBB trading activity tends to parallel NASDAQ activity. When times are good on the NASDAQ, investors often invest some of their profits in OTCBB stocks. When times are bad, investors are inclined to eliminate their riskiest investments. As such, if the NASDAQ is declining, the first things to go for most investors are their OTCBB investments. And it seems decreases in the NASDAQ are followed by a much faster decrease in OTCBB.
The average daily dollar trading volume, $ Million
Source: www.otcbb.com, www.nasdaqtrader.com
The OTCBB average daily dollar trading volume has decreased 60% from $86 million in April 2008 to $34 million in April 2009. In April 2010, the OTCBB average daily dollar trading volume recovered 230% to $113 million, exceeding the 2008 level. During the same period the NASDAQ average daily dollar volume declined 28% from $59 billion in April 2008 to $42 billion in April 2009 and increased 29% to $56 billion in 2010.
In September 2008, total dollar volume of OTCBB stocks fell to less than 0.07% of total NASDAQ dollar volume, the first time it has dropped below 0.1% since the inception of the data in 1995. In April 2010 the total dollar volume of OTCBB stocks increased to 0.20% of NASDAQ dollar volume, compared to 0.08% in April 2009 and 0.15% in April 2008.
The NASDAQ Composite Index has approached the pre-crises levels and indicates a recovery in investors’ returns and confidence. The latest Investors Intelligence poll shows that less than 30% of financial advisers had a bearish outlook on stocks, compared with 40% who have bullish expectations.[1]
OTCBB daily dollar trading volume as a % of NASDAQ dollar volume
Source: www.otcbb.com, www.nasdaqtrader.com
The bullish investors’ expectations and the signs that markets have stabilized has increased the investors’ confidence and could likely pump cash flows to the stock markets. The NASDAQ average dollar trading volume in the first months of 2010 (approximately $52 billion) was 24% higher than in 2009. As gains for the NASDAQ trading volumes are continuing, we expect the dollar volume for the OTCBB to continue recovering exceeding the pre-crises levels by the end of 2010.
[1] http://www.schaeffersresearch.com/streetools/market_tools/investors_intelligence.aspx
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