On May 17, 2010, I witnessed one of the quietest days I have ever experienced in the market. I trade in the world of penny stocks. Those shares were mainly traded on the Over the Counter Bulletin Board and Pink Sheets markets.
Volume had dried up and everyone kept saying it was due to Europe’s bailout package from the so-called PIIGS nations (Portugal, Ireland, Italy, Greece and Spain). I really doubt it, given that the average penny stock speculator doesn’t play in the same arena as funds earmarked for things like bailouts, mutual funds, or even treasuries.
So what do I think caused the lousy volume that day? Easy. The promoters were getting tired. I don’t mean they weren’t working… I mean they were using the same old type of promotion to try to entice speculators to try their particular offers.
Let me give you an example. On Friday, May 14, 2010, one of the most well-known and followed email lists in the business profiled a small business that hadn’t done much business before. The company, with the ticker symbol ECRY.OB, soared from around $0.50 to more than $0.70 and traded nearly 3 million shares on the day.
On Monday May 17, 2010, the same list issued an alert on another company FLPC.OB and traded around 400,000 shares at $0.78.
Both are good companies, so what is the difference in interest? I maintain that it is promotion. ECRY.OB had, and still has, 30-second commercials airing on CNBC. It is also an alliance partner with Research in Motion (NASDAQ:RIMM). In short, you are doing the right thing to convey a sense of stability in a volatile world on an even more volatile trading exchange. In short, it is doing things differently, relying less on faith and more on substance.
No one in their right mind would advertise on television and invite that kind of scrutiny unless they knew they could withstand the scrutiny and make sure their claims are genuine. I haven’t seen a penny stock ad on TV for a long time, years in fact.
So what kind of measurable impact did this have on speculators? On the first day of the promotion, the shares traded at high volumes. On day two of the promotion, May 17, 2010, when other issues were fighting for any kind of volume, the company managed to trade close to a million shares. Liquidity is the lifeblood of any exchange and is provided by promoters on penny stock exchanges.
Let’s face it, liquidity is the name of the game. That’s the whole reason people invest in stocks instead of real estate. So they are liquid and can come and go as they please. Put another way, what good is investing in anything, even stocks, if the price of that investment keeps going up, but it can never be sold or monetized in any way? It is absolutely useless.
The penny stock promoters who provide that liquidity deserve our respect. They are what allow the efficient functioning of the market.