The following article is written by Mr. Jason Goepfert of Sundial Capita Research.
One of the things we can almost always count on, sadly, is that when the smallest of traders get overly excited about stocks, they’re promptly about to lose their shirt. In April, I showed one measure of small trader sentiment, that being the share volume in pink sheet stocks, otherwise known as the Bulletin Board or Over-The-Counter market. At the time, volume in these highly speculative stocks had rocketed to 140 billion shares (billion with a “b” – more than the NYSE or Nasdaq exchanges). That was a clear warning that optimism for a further market rise was catching on, and as most often happens, those traders got burned. Oddly enough, we’re not seeing the same kind of behavior now, even though we’ve gone on to higher highs. The chart below updates the one I showed in April, and it’s evident that we’re seeing nowhere near the level of speculation we did then according to this indicator (the data is current as of the end of November).
Perhaps it’s just too soon after their last spanking to expect traders to jump on the pink sheet bandwagon again. I’m not sure why that would be – these traders have a tendency to try to take advantage of every uptrend. But it’s one suggestion that while traders have removed a good deal of their downside hedges (which is troubling enough), we’re not yet seeing the type of outright upside speculation that often accompanies a significant market peak.
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