Why You Should Consider Small Caps, Too

  • May 1, 2003
  • Tim Truebenbach

Things
look great right now…almost too good.
The market spent today trading around the flat line while volume came
in much lighter than yesterday.


 


In addition to the solid
market action we have seen, quality growth stocks are breaking out and pushing
higher. Gen-probe

(
GPRO |
Quote |
Chart |
News |
PowerRating) and United Online
(
UNTD |
Quote |
Chart |
News |
PowerRating)
were two great performers that saw nice pops after reporting good earnings
this week.


(
GPRO |
Quote |
Chart |
News |
PowerRating) made a good price
and volume push on 4/28, but didn’t act so well until after its earnings
release.


 

The Internet trilogy of Expedia

(
EXPE |
Quote |
Chart |
News |
PowerRating), Hotels.com
(
ROOM |
Quote |
Chart |
News |
PowerRating) and USA
Interactive
(
USAI |
Quote |
Chart |
News |
PowerRating) saw a nice boost after earnings news. 
It’s beginning to look like the ’90s in these names, even though USAI
is to acquire both companies.


 

E-commerce leader,
eBay
(
EBAY |
Quote |
Chart |
News |
PowerRating) has spent the last seven days setting up what
could turn into a nice handle.  Volume
is coming in lighter and you have to go back four years on a chart to see this
occurring.


 

When I start to see just
about every stock near a breakout point push higher, I start to get nervous.
Fortunately, I will follow rules that eliminate my opinions and force
me to keep playing the market in reaction to how things are acting. 
Doing this has kept me buying stocks and holding positions like
(
GPRO |
Quote |
Chart |
News |
PowerRating)
and
(
IMDC |
Quote |
Chart |
News |
PowerRating) even though they seemed to be doing very little at first. 

Right now, I am watching Biosite

(
BSTE |
Quote |
Chart |
News |
PowerRating) as the stock moves closer to a breakout through 44.46.
Due to a favorable earnings release, the
stock may open above this level tomorrow.



 

I don’t usually trade or
talk much about smaller, thinner names for obvious reasons, but they are
appealing to anyone with a smaller account and nimble trading skills. 
Tradestation

(
TRAD |
Quote |
Chart |
News |
PowerRating) is trying to break out as we begin trading on Thursday.

A friend of mine pointed out
a stock he has played in his account from the Cosmetics group.
The name is Medifast

(
MED |
Quote |
Chart |
News |
PowerRating) and it does move fast following a couple of good
breakouts through 5.66 and 6.45.  This
is a prime example of setting aside preconceived notions about a stock or
industry.  Most people, including myself
would say: “C’mon, a cosmetics stock?!” 
I’ll keep that thought to myself because my buddy is up 29% on the
position!


 

Bankrate

(
RATE |
Quote |
Chart |
News |
PowerRating) required some patience, but it popped through 5.27 and hasn’t
really looked back.


 

I’m not mentioning these
stocks so they are bought right now, but as evidence that small and micro-cap
names are also options as investments.

The market
is good and very much worth looking around for new setups and growth stocks
that will eventually establish buy points. 
If you don’t find any, or they stop working, then that in itself is a
firm signal from the market.  As
of this writing, that has not happened and we are seeing a phenomenal rally
unfold unless I start to see otherwise.

During any kind of drawn out
rally, we will see periods of lulls where names are taking a breather or not
offering good entry points.  During
these times, take note of price and volume to see if there are still healthy
signs appearing, i.e., low-volume declines/consolidations or heavy-volume
rallies.

I bid you farewell from

Lake Oswego
,
Ore.

!  The next column will come from
my new office and city of

Phoenix

, Ariz., next Tuesday.

Happy Trading,

Tim Truebenbach