Has the Dollar Milkshake spilled over into the OTC markets?

The Dollar Milkshake Theory (coined by Brent Johnson) has argued (since at least 2018) that there’s a giant short squeeze underway for the U.S. Dollar. I can’t recommend highly enough digging into the topic and learning first hand how dead-on the theory has been so far, but the long and short seems to be this. Since the financial crisis of 2008, the world has taken on an immense amount of debt – most of which is denominated in U.S. dollars. With the fed now raising interest rates further and steeper than most had anticipated, it’s causing debt defaults around the globe in a domino fashion. Main street doesn’t realize it, but the dollar is trading at 20 year highs right now.

A bullish dollar tends to be synonymous with deflation, which one could easily assume would be bearish for U.S. stocks and commodities like precious metals, but the key takeaways from Brent’s theory is that this overall period, however long it lasts, will ultimately be bullish not just for the dollar but also U.S. equity markets and commodities like gold and silver. Long story short, the rising tide of the dollar (and all of the capital it sucks in from the rest of the world) will ultimately help to lift U.S. stocks and markets like gold and silver.

What I believe is absolutely inevitable is that the raging dollar will ultimately force the hand of the global financial markets to adopt a new reserve currency of some sort, but that’s further down the line and way beyond the scope of what I’d like to discuss. Moving forward in this article, I’m going to write under the theoretical assumption that the dollar squeeze is indeed on and Brent is correct in that it’s helping to draw in immense amounts of capital into the U.S. equity markets, and how I believe that is tying into the OTC penny stock world.

Back in 2020 and then much more so in 2021, the OTC world saw the wildest phase I can ever remember witnessing. While there were a lot of hot theme plays taking their turn cycling back and forth, from bitcoin stocks to cannabis plays to mining stocks, etc, what I want to focus on are the OTC shell plays which overall were the most impressive to me. The theme went something like this: Old empty ticker/shell finds new life via a reverse merger, often with a middle man taking the reins and applying for custodianship so they could oversee the transition from empty/neglected shell to new company merging into the shell.

I wrote about this already a bit, once in the article talking about Frank and AlphaRidge Capital and their shells they oversaw and again discussing all of the incredible monthly charts I was seeing in the OTC – many of which were tied to shell/reverse merger plays. The main point I want to make with these monthly charts is that A LOT of capital came into many of these tickers, locked up the float, and even though many are still well underneath their 2021 peaks, there’s little sign of massive distribution (ie little volume near the highs) on many of these charts which means that all of the capital that flooded in and took many of these OTC tickers to insane highs, are still tightly held by the smart money/whales/big boys or whatever you want to call it.

So the key idea from the dollar milkshake theory is that there’s an overwhelming amount of demand for dollars currently, and it’s not likely to reverse any time soon, and all that demand is not only going to push the dollar steadily higher in the next 2 or 3 years at least, but it will also flood into U.S. equity markets and push them to new all time highs.

The key idea from my OTC observations is that, in many tickers and especially shells turned reverse merger plays, a tsunami of capital came in and loaded the boat and locked the float. All of said tickers which saw the capital influx went on to legendary runs, many to new all time highs, but over the course of the past year and especially in the 2022 calendar yet, most have come way back down to earth. What’s noteworthy and what I wanted to emphasize in my recent articles is that I don’t think many of these shells turned reverse mergers got dumped into all too heavily, ie the big boys are still holding for more upside – which implies continuation breakouts on extremely long term time frames (huge *@$%ing money still to be made).

Of course the amazing rallies from 2020/21 had plenty of selling which ultimately helped slowed down the momentum, but it wasn’t the type of textbook capitulation volume that would mark a long term top. Instead the tops on many of the charts had very low volume bars at their 2021 highs, which is a sign of waning interest opposed to exhaustive blow off top volume. The former tends to be a sign of a temporary temp, more of a breather in the action before the volume ramps up again.

Another interesting theme I’m seeing in quite a bit of these shells turned reverse mergers or potential R/Ms is that many of the merging companies are foreign companies looking to get listed on the OTC, an American exchange. If you think about the damage the dollar is doing to emerging markets and their markets/currencies, getting listed on a U.S. exchange and having access to that market and it’s capital and strong currency seems like a very shrewd move for a foreign company right now.

I certainly won’t pretend to understand the inner workings of the shit show that is our current global financial system, but I know that right now Brent and his dollar milkshake theory have been spot on to date. I also know what I’ve been seeing in the OTC market since 2020/21 is an unprecedented event, at least on this scale. I believe these two observations are very compatible and in fact offer a level of confirmation for the other.

Over the 16+ years of trading the OTC I’ve seen many nice long term monthly chart breakouts develop from long bases and massive accumulation of the float, but I’ve never seen so many all at once. Something big began in 2020/21 and whatever began is still in motion. The scale of the first wave up was so large that the natural correction to that move is being mistaken for a dead market, but it’s simply a healthy correction before an inevitable wave 2 to new highs.

Why did all of the capital come pouring into these shells? Well if Brent’s theory is at least partially responsible then it makes a lot of sense. In a world desperate for safe havens as the dollar sucks the liquidity from the rest of the global system, these OTC shells turned reverse mergers are going to be amazing vehicles to survive the carnage – especially foreign for capital and companies. I think the entities that started pouring into these tickers back in 2020/21 knew exactly what was going on. As vehicles for capital and liquidity get more and more expensive, there was (and still is) a massive opportunity with these shells. They offer the same thing that an IPO does but at a fraction of the cost and effort.

What I believe I’m seeing in the OTC world is still just a theory, though it’s a theory based on 16+ years of specialized experience in the OTC. To say I feel confident that there are life changing opportunities staring us right in the face in the OTC market is an understatement. A float doesn’t just accidentally get locked up one on stock, let alone a whole laundry list of them at once. I can feel this confident because the amount of capital that came in to an otherwise very illiquid market stands out like a sore thumb. Brent’s dollar milkshake theory just so happens to provide a correlating explanation for what’s going on in the bigger picture, which also would perfectly explain what the heck is going on in the OTC with these reverse mergers.

As a trader in the OTC, what does this mean in practical terms?

  • I plan to be ready to trade the crap out of these breakouts. I think we’re going to see huge opportunities and being ready and watching for them is going to be critical.
  • The time frame being referenced is the monthly chart, which means all of this will take time. Patience will be key, but long consolidation phases on the monthly chart are where you should be watching and possibly buying, but most retail traders move on and only return when the breakout is has matured and is well advanced.
  • Breakout confirmation on these time frames would imply some potentially monster longer term moves, so that means some runners can and will move way beyond what could be considered rational. With this in mind, I plan to hold portions of some of my positions for the long haul (whatever that means, we will see). That being said, I always encourage taking some profits into strong moves when you can. There’s a balance to be had, but you gotta let some run for the chance to make the real life changing sort of returns.
  • I only plan on playing OTC stocks which meet this pattern being discussed. If the monthly chart isn’t wide open to new blue skies, or if that isn’t at least a reasonable possibility of getting back to new all time highs, I won’t waste my time with it. If I mention a ticker in the chat room, you can assume I like the monthly chart at least enough to consider it.
  • While there are quite a few in my watch list of strong monthly chart + reverse merger play, I believe there are some that stand out as being better bets than others. My personal belief is that targeting a few while they’re well off their 2021 highs but otherwise have great charts and share structure, and going in for a larger position while they’re under the radar, is the calculated gamble this era in the OTC warrants. I’ve got a few I especially like and $OCLG is probably my favorite of the bunch. It was originally Frank’s top ticker and now that the retail market has soured on him and his tickers, $OCLG is very cheap.
  • Speaking of Frank, I don’t care how much twitter bashes him – his tickers have some of the nicest monthly charts with the cleanest path to new all time highs. Once one of his tickers gets the green light, the market will realize how ignorant they’re being by disregarding all of his former shells just because the markets cooled off and corrected immensely on these merger plays. Timing and psychology is everything in this game. These are gorgeous charts with insane potential, and nobody is touching them because the sentiment is so bad and there’s so much fear in the OTC. But then a move like $GTII happens and suddenly everyone jumps on board. We’re going to see many more examples imo.

If you’re interested in becoming an expert on reverse mergers, I just found a PDF book which seems to be a gold mine of info.

Reverse Mergers – Taking a company public without an IPO