Rotation out of big-cap technology and into small-caps never occurs very smoothly. Investors don't give up on well-known big-cap names very easily, and the volatility of small caps makes them difficult for many investors to trade.
We have a good example today as the big cap names are leasing once again, with the Nasdaq 100/Invesco fund (QQQ) gaining 0.85%, while the Russell 2000 fund (IWM) is lagging with a loss of nearly 1%. When small caps lag, that typically means that breadth is weak. That is the case as we have around 3,600 gainers to 4,300 decliners.
Big caps are still viewed as the safer alternative regardless that the valuation, in many cases, is not that attractive. It is just much easier to park cash in a stock like Amazon (AMZN) or Adobe (ADBE) than it is to put capital into highly volatile smaller stocks that have traded so poorly for so long.
The rotational action isn't dead, but it is not going to be easy to trade. There is also the risk that there will be some macroeconomic news that causes correlated movement in the entire stock. When that happens, valuation and technical conditions just don't matter much.
Here is an example of a small-cap stock that I've been following for quite a while. Xeris Pharmaceuticals (XERS) has developed a drug delivery system that allows the medication to be easily delivered by an auto-injection. It doesn't require refrigeration. The Gvoke HypoPen is a glucagon injection used for very low blood sugar. The company is working with other companies, such as Merck (MRK) , for various other applications.
Technically the stock needs a catalyst. It moved up nicely on earnings and is now basing, but unlike big caps that are covered on a daily basis, this story is not known at all. The technical setup is what I call an anticipatory breakout. It needs some news to move it and break above the $3 level.
When the market is poor, stocks like this suffer badly from a lack of liquidity, but in a better small-cap environment, it should stay technically positive while awaiting the next news event.
Here's a chart generated by TC2000 of the stock's actions, with notations:
There are many other stocks with similar issues that are acting better technically, but still need some sort of news event to trigger them. If small caps can start to produce better relative strength, then these patterns should work well.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider some stocks to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)
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