Small-Cap Tech Moving Up

 | Jan 27, 2012 | 3:00 PM EST
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While Materials continues to be the leading sector in the small-cap universe, Information Technology (IT) is nipping at its heels. 

Many smaller tech names have made significant moves in conjunction with earnings season. While widely held blue chip names often make a move on news, the percentage change is frequently more subdued.

Smaller stocks, though, with less institutional ownership and fewer shares changing hands, can make bigger moves, either up or down, as news breaks.

One component of the SPDR S&P 600 Small Cap ETF (SLY) that has been trading to the upside ahead of earnings is Synchronoss Technologies (SNCR). The company makes cloud-based software to connect various networks and mobile devices.

It's expected to report its earnings numbers on Feb. 7, after the close.

The company was mentioned in a Goldman Sachs report that highlighted some analysts' small-cap picks. That mention helped send shares more than 7% higher the week ended Jan. 27. Also, trading volume was heavier than normal -- a bullish sign.

Like many other small caps -- even fellow components of the S&P Small Cap -- Synchronoss is thinly traded, moving only about 290,000 shares a day. It trades in a volatile fashion, with a beta of 1.39. With the recent upside move, it cleared a bullish price consolidation, and could be considered in a technical buy range at the moment.

Another S&P 600 small-cap tech name that's been moving up is Manhattan Associates (MANH). The company is in a very specialized niche: It makes supply-chain software and hardware to help retailers, manufacturers and distributors manage demand and inventories.

This is another small company that should be handled with more care than, say, a more steady Dow Jones Industrial Average (DJIA) component. The company's market cap is just shy of $900 million, and it trades about 158,000 shares a day.

As the general market corrected last summer, Manhattan also pulled back, undercutting the low of its prior consolidation. That's often constructive price action since it clears a path for new investors to buy in at a lower price.

After crawling up from its Aug. 9 low, the stock rallied 51% to an 11-year high of $46.62. It's consolidating once again, but has been attempting to etch the right side of its current pattern. The company is slated to report earnings on Tuesday, so it may make a big move on news.

Another small-cap SLY component making a move is Cirrus Logic (CRUS), which makes audio chips for the iPad, iPhone and iPod. The stock bolted 17.7% in monster volume the week ended Jan. 13 on bullish third-quarter revenue guidance.

It made further price progress the following week, but pulled back Friday after its third-quarter report, which followed Apple's (AAPL) results on Tuesday. This appears to be a case in which the stock was priced for perfection and was ready for an earnings-related pullback.

Although the company beat top- and bottom-line views, and raised guidance above Wall Street's expectations, investors clearly expected even more. No doubt, Apple's stellar quarter raised anticipation for Cirrus.

Shares sliced their 10-day moving average on heavy volume Friday, a technical signal that a correction -- even a brief one -- is likely in the works. Sometimes there's an immediate visceral reaction to earnings news that is interpreted as disappointing, but stocks rally back within days or weeks. Cirrus remains one to watch, as it could offer a fresh technical entry point in the not-so-distant future.



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