Today's action is unsurprisingly tepid as market players dink around with small trades to close the book on 2011. We have a slight positive bias with breadth running about 2600 gainers to 2500 losers, but I see more aggressive selling than buying in many small-caps.
One of the things that has made trading tough this year is that we haven't had many strong themes. A year ago, momentum traders were all over the rare-earth plays and we had some great action at times in solar energy, China and precious metals. This year we haven't really had any strong momentum theme since the runs in gold and silver in the spring.
It is the themes and pockets of momentum that tend to make for the best trading markets, as far as I'm concerned. I'm hopeful we will see that happen more in 2012, but it is important to be flexible enough to embrace themes that are to the downside as well. Solar energy was a particular good example of that. Once the theme died, the group was a great short almost all year.
As far as themes go, I'm reaching a bit this morning, but I do like the small-cap energy plays. Magnum Hunter Resources Corp. (MHR) is setting up quite nicely and remains one of my favorites. Warren Resources (WRES) is a Rocky Mountain oil and gas play that is expected to earn $0.48 per share next year. That is showing some signs of life today as it move back over recent highs around $3.25 on decent volume.
There isn't much going on out there, so don't force it just to stay active. There is little edge, and there won't be until things pick up again next week.