Stocks’ Speculative Ghost Town

Posted 11/10/11 by Jason Goepfert                                                                                       Archive »

Sometimes, people just don’t care.

Despite a massive October rally in stocks, speculative penny stock traders actually reduced their trading activity last month, from what had already been very low levels.

Share volume, dollar volume and transaction volume are all dragging along at or near decade lows.

Why might this matter?

Over The Counter (OTC) stocks are the market’s Wild West.  Filled with penny stocks that are more akin to lottery tickets than anything, the ebb and flow of volume in these stocks highlight the speculative appetite of traders.

When penny stock volume is very high, it tends to precede market peaks; when volume is very low, it tends to precede troughs.

The only other times in recent history that volume has been this depressed were near the prior two bear market lows in the falls of 2002 and 2008.

This may have something to do with adjustments to margin requirements on low-priced stocks.  We've heard from some traders that this has changed their trading focus.  So there may be a structural reason for the decline in volume.

If not, it's a good long-term sign for stock prices.

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