Focusing on Small-Cap Plays

 | Nov 21, 2012 | 8:08 AM EST
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There is one day that is ours. Thanksgiving Day is the one day that is purely American. --O. Henry

Despite the inability of the Europeans to reach an agreement on Greek debt and a lack of confidence from Fed Chief Ben Bernanke yesterday, the market is holding steady this morning. There is good reason for some selling but there is some optimism in the air, which probably has something to do with the fact that we are looking forward to the Thanksgiving celebration. The emphasis at Thanksgiving isn't on buying gifts but on giving thanks and appreciation, and that tends to make most people ignore some of the usual worries and focus on the positives.

If you want to be negative, there are plenty of things to worry about. Foremost, the market is being bailed out over and over again by some sort of European rescue or a new liquidity program from the Fed. Those two things kept the market in rally mood for many months, but they are lacking now.

In addition, there is some real concern that third-quarter corporate earnings were not an aberration and that we are going to have another challenging round of reports when the news hits in January.

We've seen some improvement in housing but for the most part economic data remain soft and, of course, the biggest issue of all is the fiscal cliff. Everyone is aware of how dire the repercussions might be if a deal is not made, but political leaders are expressing optimism and the will seems to exist to make a deal. Politicians are worried about being blamed if no agreement is made and that may be enough to produce some needed compromise by both sides.

The other big item of concern is the technical pattern. The market finally managed a solid oversold bounce and it held up well on Tuesday, but the overall trend remains down and the risk that the market will roll over again is high. The bulls want to believe it will run right back up, but that is a belief based more on hope than facts.

The good news is that there are days in the market when the big picture doesn't matter all that much. Market players focus on individual stocks and finding opportunities. They just try to make some money and don't let the headlines impact them very much. Today looks like one of those days.

As I discussed yesterday, we often see some very good speculative trading around the Thanksgiving holiday. Traders know that there is an inclination to run up some small-cap names and they are trying to jump in and grab a piece of the action. It is practically a tradition and if you can spot the right plays early, it can pay off nicely.

I'll be focusing on some of these small-cap plays today; I'm going to set aside the big-picture concerns for a bit. I'm not at all convinced that this market has seen its lows, but that isn't an issue for today. We are still in bounce mode and the big worries can wait until later. Today is for trading.

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