Small-Caps Are the Place to Be for Now

 | May 17, 2018 | 11:17 AM EDT
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Small-cap stocks are outperforming once again and that is helping to pull up the rest of the market. Typically small-caps perform best when the major indices are trending strongly so this is unusual but breadth is extremely strong and good stock picking is being rewarded.

For much of the rally into the January high the primary trade was to pile into the FAANG names and other similar big caps. It was driven from the top down but now we are seeing a focus on finding smaller names that may offer interesting valuations and stories.

This is a great trading market for stock pickers that focus on small-caps. It is much more difficult for those that focus on the indices and the bigger caps. The DJIA is up but the move is minor compared to the small-cap indices and individual stocks.

I continue to find good movement in biotechnology but there is also good action in oil. I added to a position in Clearside Biomedical (CLSD) . My stock of the week, Arena (ARNA) continues to move along nicely and prior Stock of the Week, Baozun (BZUN) exploded higher on a good earnings report.

This is the sort of market that rewards speculation in what I call 'junk' names; low prices stocks that may just have a story to support them. Examples are VivoPower International (VVPR) , Fibrocell Science (FCSC) and Vaalco Energy (EGY) .

Some of these moves are looking a bit overheated but the speculative juices are flowing. Small-caps are the place to be for now.

Columnist Conversations

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