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Bulletin
Board Vs. Pink Sheets - It Matters |
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As
always, today we've got news and data we think micro cap investors deserve
to know. However, also cognizant of the questions our readers may be asking,
we believe now may be the ideal time to make a clear distinction between
'pink sheet' stocks, 'bulletin board' stocks, and the NASDAQ-listed market.
It's nothing heavy or legal-ese laden - it's just something savvy investors
should probably understand. As the headline reads, it matters.
You may have
heard many small cap stocks described as an over-the-counter bulletin
board issue, or an 'OTCBB' stock, for short. The NASDAQ market is also
sometimes called (though somewhat inaccurately) the 'OTC' market, which
could lead one to believe there's a connection between the two. The truth
is, however, the 'OTC' acronym is more of a general term than most
investors may realize.
 The
bulletin board quotation system is indeed considered an 'over the counter'
market in, that there's no physical 'manned' exchange. But, it is not
part
of the NASDAQ stock market. Instead, the OTC Bulletin Board is a network
of many market makers, each reporting current bids, offers, and completed
trades to a centralized computer. The NASD has no authority over (or even
connection with) companies with bulletin-board-traded stocks.
One potential
source of confusion is what seems like seamless integration - bulletin
board stocks can be traded or quoted via most NASDAQ data feeds. In
fact, to the retail investor, NASDAQ-listed and bulletin board stocks behave
identically. That's simply the power of technology though....the quotes
you retrieve - and even the trades you make - for bulletin board
names are not actually handled by the NASDAQ's computers, but rather through
the bulletin board's closed computer network (sort of - see below).
The aggregate result is an orderly system of trading these bulletin board
issues.
In some respects,
it could be considered a near-mirror image of the NASDAQ's collective bid/ask
technology. However, there's one key difference - trades done with NASDAQ
stocks are actually processed by the exchange; trades done in bulletin
board stocks are handled directly by the two market makers....the board
simply 'introduces' the two parties.
By the way,
unlike a NASDAQ listing, a company desiring to have its stock trade as
a bulletin board stock has no exchange to approach...they have to do
it through one of the participating market makers.
Despite the
technical differences though, there are some important commonalities
between the bulletin board and NASDAQ markets - both have SEC filing
requirements. Any public disclosure and documentation you can expect
from NASDAQ-listed (or even exchange-listed) companies can also be expected
from companies with stocks trading as OTCBB issues. This information is
usually accessible through EDGAR.
If they don't report, they soon get removed the bulletin board system.
 So
where do pink sheet stocks fit in? This market (technically, it's
a quotation service) is actually run by a company called Pink Sheets LLC,
and is yet another computerized over-the-counter market, though
with a few differences. Like bulletin board stocks, only a market maker
can list and provide quotes for a Pink Sheet equity.
The differences?
There are essentially no size or registration requirements for a stock
to trade on the Pink Sheets. And, a Pink Sheet listing doesn't preclude
being listed on other exchanges. The most notable difference, though,
is the lack of SEC filing requirements - companies with a pink sheet
presence don't absolutely have to provide disclosure of their financial
results and material information (though they are strongly encouraged
by Pink Sheets LLC to do so). On the other hand, they aren't forbidden
to
file these documents.
Though many
don't, some companies with stocks trading as a Pink Sheet equity voluntarily
submit quarterly and annual filings. The goal is to establish credibility
with the marketplace, and perhaps make it easier to achieve a bulletin
board or exchange-listing in the future. So, we caution an investor
against categorically avoiding pink sheet stocks simply due to a lack of
regulatory requirements. You may find many Pink Sheet equities with
full disclosure, and in some cases, far better results than bulletin board
or even exchange-listed companies. As usual, we advise considering stocks
on a case-by-case basis.
One of the more
common pitfalls in trading small and micro caps stocks is making a buy/sell
decision with a 'snapshot' view. In other words, just because a stock or
idea doesn't look ideal at one point in time doesn't mean it won't
look better in the future. This is why we feel it's crucial to maintain
a watchlist of your favorite potential ideas - to find the best
technical entry points for a company with good fundamentals.
To that end,
we want to revisit some of our more recent ideas from either blog entries
or newsletters. At the time we first mentioned them, we may have been looking
at a chart right after a run-up or a pullback. Now that the dust has settled
though, some of these ideas may deserve consideration.
Our first look
at Zhongpin Inc. (OTCBB:
ZHNP) was in a blog entry from May 24th (There's
Potential In Pork). At the time we liked the stock's renewed movement
and the underlying growth story - quarterly revenues had increased by 81%,
and earnings increased by 77%....and both were expected to keep rising
due to some major growth initiatives. However, the 40% rally in the
equity's price over the prior month could have been - and apparently
was - a little intimidating. ZHNP fell from a high of $11.34 on June
1st, all the way to a low of $8.90 on June 29th.
Over the last
few days though, things appear to have changed - Zhongpin looks to be on
the move again. The June 29th low tagged the 50 day moving average line
in what may have been a washout day, meaning the higher-than-average volume
shook out any lingering sellers. Since then, it's been nothing but bullish,
rebounding to the current price of $10.20. Considering how well Zhongpin
has already moved, we have to wonder if this is the beginning of the second
wave of buying.
When we last
looked at Clean Diesel Technologies (OTCBB:
CLDS) on May
21st, it was trading under a different symbol.....'CDTI'. A lot has
changed since then besides the ticker and associated reverse split. The
share price, for one, is considerably higher. On that day, news of a deal
with German automotive equipment maker Bosch sent shares higher in a big
way, closing at (split-adjusted) $12.50. Within three weeks, shares would
reach as high as $17.00.....a 36% move. The current level of $14.00 may
be much easier to stomach for anybody who missed the boat the first time
around.
Remember GlobalSCAPE
(OTCBB: GSCP) from
June
1st? At the time the stock had moved up to $3.10 on news of strong
quarterly sales guidance, and on the heels of a major stock buyback. In
a little over a month, GSCP has continued to move upward, currently trading
at $3.75, up 21% since our first look. Possibly even more incredible is
the remaining upside potential, rooted in the shape of the chart.
Though most
traders are familiar with the term, it's actually a rarity to see a true
wedge
on a stock's chart. All the same, GlobalSCAPE might be showing us a bullish
one at the moment.
The upper side
of the wedge is marked by the June 14th high of 4.00, and extends all the
way down to yesterday's high of $3.75. The lower side of the wedge is a
little more loose. It generally starts with May 28th's low of $2.58, and
extends upward into yesterday's low of $3.65. Obviously the wedge is closing
in on itself quickly, which will squeeze GSCP shares out of it soon - one
way or another.
Based on the
bullish momentum established prior to and during the formation of the wedge,
conventional technical analysis suggests GlobalSCAPE shares are poised
to break out on the upper side of this triangle shape, and continue rising.
So, though far from guaranteed, we believe the wedge shape improves
the upside odds. In fact, a breakout may be even more likely thanks to
some support at the 20 day moving average line, which recently came back
into the picture.
Thanks for all
the great feedback regarding last week's edition 'Water,
For Thirsty Investors'. We also received several other water stock
ideas from our readers, and will be recapping some of those names in a
future newsletter or blog entry.
In the same
vein, if you've got a stock idea, or some feedback on one of ours, please
chime in. You can send us an e-mail using the link below, or you can reply
to individual blog entries. Better still, if you have a topic idea for
a future newsletter, let us know that too.
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Updated: 9:18 am PST (17:18 GMT), January 5, 2009
