Hot Action in Lowest-Tier Issues Shows Stocks’ Speculative Tone

NEW YORK —  Trading volume in OTC Bulletin Board and “pink-sheet” stocks--generally considered the riskiest of U.S.-traded shares--has rocketed in recent weeks, in another sign of the soaring level of speculation on Wall Street.

The OTC Bulletin Board, the electronic venue for issues too small to qualify for listing on the Nasdaq Stock Market, reported record volume of 24.2 billion shares traded last month, three times the average monthly volume of the fourth quarter.

That works out to about 1.2 billion shares a day. By contrast, the Nasdaq market has been trading about 2 billion shares a day.

Dollar volume of trading has grown even faster, to $24.6 billion on the Bulletin Board in February from $3.9 billion a year earlier.

Volume data for the pink-sheet market--a smaller tier of stocks than the Bulletin Board--are unavailable, but Clark Yingst, market analyst at Prudential Securities, said anecdotal evidence indicates a similar leap in trading activity.

The Bulletin Board is, like Nasdaq, an arm of the National Assn. of Securities Dealers, but its operations are separate from the Nasdaq market.

Pink-sheet stocks, so called for the color of the paper on which their prices used to be printed before the market went electronic, tend to be issued by obscure firms, often with track records too spotty even for Bulletin Board listing. Price quotations, when available, are supplied by the National Quotation Bureau in New York.

Trading in many or most Bulletin Board and pink-sheet stocks is dominated by individuals, because many institutions--pension funds, mutual funds and the like--are prohibited by their charters from owning issues that small.

Thus, the trading volume surge indicates that individual investors are aggressively buying these issues. Not surprisingly, many of the biggest gainers are technology or biotech issues.

Investors bidding for these stocks may be searching for underappreciated companies whose fortunes are improving. Most of the companies on the Bulletin Board and in the pink sheets aren’t followed by Wall Street analysts. Financial information on the pink-sheet firms can be hard to come by.

Some of the firms, such as Ventura-based Vsource, a business-to-business e-commerce network provider trading on the Bulletin Board, have plans to move up to a Nasdaq listing. But most of the stocks on the lowest-tier markets languish there permanently.

Historically, when these markets suddenly spring to life and wild bidding overtakes the shares, it has been “an infallible indicator” of a market top for Nasdaq overall, Yingst said.

The last time a Nasdaq plunge was foreshadowed by furious activity in these “microcap” markets was in spring 1996, when the Nasdaq was being led by such highfliers as Iomega and Presstek.

After a dramatic rally to a then-record 1,249.14 on June 5, the Nasdaq composite index slumped 17% in six weeks. The index regained the lost ground by the end of the year, but many issues--Iomega and Presstek, for two--never recaptured the heights they reached that spring.

In recent weeks, a number of Prudential brokers have told Yingst that “on any given day the bulk of their activity has consisted of fielding unsolicited buy orders in pink-sheet and Bulletin Board stocks,” he said.

And where are these Prudential customers hearing about such stocks, if not from their brokers? From anonymous postings in Internet chat rooms, Yingst said.

Consider Computerized Thermal Imaging Inc. of Layton, Utah, which hopes that its machines one day will supplant conventional mammography devices. The stock is up 283% year to date in Bulletin Board trading. It closed Wednesday at $14.87, up $1.50.

Giving a push are messages such as one posted on the Silicon Investor site Tuesday by a supporter using the alias “Chirodoc.”

“They will be the first to market with an alternative to mammography, with at least a one-year head start on all competitors,” Chirodoc gushed, adding, “Orders from foreign countries are already starting to roll in (we assume) and they have plenty of funding for a fast and furious national roll-out.”

The machine, however, has yet to receive Food and Drug Administration approval. But if it ever does, Chirodoc, using what he calls “back of the envelope estimates,” figures the shares should hit $100 in two or three years and $200 in five years.

It strikes Yingst as perverse that investors would listen to anonymous stock touts at a time when so much verifiable information about thousands of companies is available on the Internet. “If this doesn’t represent speculation,” he said, “I’d like somebody to define for me what speculation is.”

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* REGAINING GROUND

The Dow inched up and Nasdaq rebounded after Tuesday’s dive. C4

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Small Stocks, Huge Gains

Here’s a sampling of OTC Bulletin Board stocks that have rocketed this year. Shares trading on the electronic Bulletin Board generally are those that don’t meet listing requirements for the Nasdaq Stock Market.

Ticker Dec. 31 Wed. Pctg.

Stock symbol close close gain

Dauphin Tech. DNTK $0.27 $7.94 +2,841%

MSI Holdings MSIA 6.25 38.88 +522

Epoch Pharm. EPPH 3.25 20.00 +515

Socket Commun. SCKT 8.47 33.25 +293

DCH Technol. DCHT 2.97 11.03 +271

Vsource VSRC 15.00 46.50 +210

LifePoint LFPT 2.13 6.00 +182

Micro General MGEN 16.31 40.13 +146

Celsion CELN 2.94 6.47 +120

FirstQuote FSQT 7.38 16.25 +120

Nasdaq composite 4,069.31 4,897.26 +20

Sources: Market Guide, Bloomberg News

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Running Wild

Share price volume on the OTC Bulletin Board--home of some of the most speculative small stocks--has rocketed in recent months as individual investors have clamored for little-known shares. Monthly trading volume, in billions of shares:

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February: 24.2 billion shares

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Source: OTC Bulletin Board