- The OTC Special Event Theory suggests that a certain many OTC shells are currently undervalued and some have Deep Fucking Value potential.
- Regulation changes in the OTC markets in 2021 led to the cleanup of hundreds of shells, many of which had been defunct and out of commission for many years. This sparked a bull market with an unprecedented number of OTC tickers hitting new long term high price levels.
- Eventually the market became flooded with shells and the rallies became very top heavy, and that spilled over into a nearly 2.5 year bear market correction.
- The Special Event Theory puts forward the idea that the 2021 bull market for these shells was just the first wave of a much larger movement of capital into them. If that proves to be the case, then the second wave would be overdue and we’ll see a growing number of these shells or former shells begin to run up, test their long term ceiling levels, and ultimately break through for the secular breakout/continuation signal.
- The fundamental driver for the demand of these shells is their functional value as private companies can use them as vehicles for merging and gaining access to US capital markets. This is especially true for foreign private companies who’s local currencies are very weak versus the dollar, hence why a large number of these merging companies have been and will continue to be foreign businesses.
- Another additional fundamental driver are market makers who historically will naked short sell into rallies of distressed OTC stocks as means of lining their pockets via what is essentially counterfeiting. They’ll never have to cover their shorts, including naked shorts, if the stock goes to zero, so the process of becoming a viable merger vehicle is important to transition into a growing company with a future. This is in turn will force short covering, possibly a lot of it depending on the stock’s checkered history (and how much it was shorted)
- The technical driver is the strong secular trend present in some of these shells. The basic idea is finding the stocks which broke out of long term bases in recent years, many being around 2021, and then seeing which ones have held up the best since then. In theory those should be some of the easiest to squeeze.
- The better their charts have held up since the peaks, the more attractive the shell is for any merging companies. A strong chart with access to liquidity means they can raise capital into strength, giving legit companies a real path towards growth and then uplisting. This is critical for trapping the shorts.
- In theory, the stronger and more promising the chart, the better the fundamentals can potentially be. The ideal situation is finding the strongest chart situations with the strongest fundamentals behind the company. It’s the long term sustainability and path towards growth that will ultimately trap the shorts and force mass covering.
- This is a longer term outlook so keep that in mind. Trends and phases on this scale take a long time to pan out and the shorter term counter trend moves to the long term stuff can make timing very difficult and painful when wrong. Dig in and be ready to be patient, focusing on the bigger picture will be critical.
