Penny Stocks Are Going Wild as the Market Nears Overbought
Lots to consider before I leave for vacation.
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Note: I am taking a vacation. The next installment will be Monday, June 22nd.
Over the course of the day on Thursday, I saw an active trader comment that ‘it felt like the market was down’. Yet it wasn’t. I saw another active trader note that it ‘feels so slow’.
Yet Nasdaq traded near record volume. Well over twelve billion shares traded on the Nasdaq on Thursday. That is on the heels of 11.3 billion on Tuesday and 10.3 billion on Wednesday. So why does it feel so slow?
And since 75% of the volume was on the upside on Thursday, why did it feel as if the market was down? Penny stocks.
I’ve touched on this in the last few days because it has once again gotten quite persistent. But Thursday was truly something to behold. Two stocks accounted for nine billion shares traded on Nasdaq. That’s the most I have seen yet, and it is breathtaking.
Now I have to put an aside here because with about an hour to go the Wall Street Journal showed Nasdaq’s volume was pushing over 14 billion shares but the end of the day showed it at 12.2 billion shares so we might see some adjustments after the final numbers settle.
Either way, if Nasdaq really did trade 14 or 15 billion shares (a record) and 9 billion shares was in two penny stocks, that is still about 60% of the total volume on Nasdaq (instead of the 75% it shows now).
This is absurd. It is speculative (and, yes, Nasdaq needs to figure out a way to get rid of this penny stock volume in their total, but that’s a story for another day). It is almost as absurd as Quantum Computing trading nearly its entire float on Wednesday.
Aside from that, the American Association of Individual Investors (AAII) showed a change this week with the bulls notching up to 38.7% and the bears down to 33.6%. That is not a wide spread but it is the highest spread between the bulls and bears (with bulls higher) since late January. Let’s call that a change in sentiment by this cohort.
The NAAIM folks have barely changed their exposure in three weeks; they sit at 82. That leans high but that’s the worst you can say.
The Daily Sentiment Indicator (DSI) for the S&P is at 77 while Nasdaq’s is at 76. Those also are not extreme. However if the indexes continue to levitate as they have, these will push over 80. If the levitation becomes something more vigorous, they could scoot well into the 80s.
Thus far my call for more volatility has not come to pass, but the VIX has been green for two days now, which is typically no big deal except that it hasn’t done it since the first days of May so that’s another change from this week.
To sum it up, this week, the penny stocks have gone wild, some of the speculative stocks have as well, while Nasdaq’s volume has soared. Yet the number of stocks making new highs can’t get out of its own way and sentiment has pushed a smidge more bullish. All as we get back to a short-term overbought in the next day or two.
