After the very energetic move in many secondary stocks on Monday, Tuesday is a day for strategy. It is important to have a thesis in mind not only for the overall market but for each individual stock you are trading.
My "big picture" view is that the rotational action into small-caps is likely to continue. It is going to be choppy and sloppy with the Fed decision Wednesday, and some other macro news is having any impact, but technical conditions combined with positive seasonality are keeping me optimistic.
As for individual stocks, the trading strategy is much more complex. What tends to occur with small-cap stocks is that volume suddenly disappears, and the names go bidless. That makes it easy for shorts that are looking for a good trade and makes fundamental bulls nervous.
Quite often, the low volume fades are great opportunities, but as we saw earlier this year, it can be quite painful if your timing is off and your positions become too big.
A good example is Elys Game Technology (ELYS) , which I've discussed here often. The company is rolling out a sportsbook product that can be used by restaurants and other smaller venues. I believe they have a unique product and will eventually start issuing some positive news, but ELYS is the sort of stock that can move around almost randomly. It is very easy for traders to push it around on light volume. The stock had a nice move Monday and then gave it all back today on lighter volume. Nothing changed, but shorts took advantage, and weak bulls are stopped out. I've nibbled at Elys today and will ramp up my position again as it develops.
There are many smaller stocks that act this way. The volatility on a day like this isn't indicative of anything fundamental. It is important to have a strategy in mind for how you deal with this sort of action. Typically people are not clear about time frames, and then they end up feeling trapped as reversals occur.
This sort of trading is very challenging, but the fact that it is difficult is why we can profit from it so greatly.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider ELYS to be a microcap 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.