Wednesday, May 23, 2007

Time For Smaller Cap Issues ?

"Think of yourself as on the threshold of unparalleled success. A whole, clear, glorious life lies before you. Achieve! Achieve!"

Andrew Carnegie

Below is a chart comparing the S&P600 Small Cap Index and the S&P 100 Index. In the bottom section is the spread(S&P600 / S&P100) between the two indexes. This spread shows which group of stocks is performing best. Since the beginning of April the larger cap stocks in the S&P 100 have been outperforming small cap stocks. Over the past few days this looks to be changing and the smaller cap issues are getting some interest.

An example of a small cap company first mentioned back in mid March. is Zoltek(ZOLT).

Zolt has started another move up and looks like it could reach its first target around $41.50 without much trouble. A few other stocks in the same sector that look good are below. Carbon fiber is a great area to look for investments. As Boeing's business grows on global demand, assume that suppliers and products that go into production of aerospace products should have a strong underlying demand.

SGL Carbon AG (ADR)

Hexcel Corporation

Scanning through smaller cap stocks looking for bases and volume spikes could point out some future winners. The process of how to go about this will be covered in the next post.


Below is a chart showing the S&P 500 with its Advance/Decline moving average.

As the S&P500 Index gets to the old high area from back in 2000, it is good to keep an eye on which groupings of stocks are getting the attention. Below is a chart showing the Midcap S&P400 Index.

As the market goes higher, look for signs of strength to confirm bullishness, but also look for cracks in the bullish case and have a plan B. The market has had a nice recovery off of the February weakness. There is no need to be overly greedy after the move we have had. Look for stocks breaking out of basis with strong volume and triangle patterns doing the same. The next post will deal with scanning for these type situations. Below is a chart of the the Wilshire 5000 Index and section showing the % of stocks trading over their 40period moving average.

Large cap issues have carried this rally. It could be time for smaller cap issues to catch up while the larger cap names work off their overbought conditions.

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