Alert: Key Small Cap Stocks Start Waking Up
Rotation of money is one of the key principles that every trader must understand. When any market comes off a big fall, the first stocks to bounce are large caps. This is because they are the safest and investors are still scared, thus risk adverse. Once the large caps shoot up dramatically, money rotates to mid cap stocks and finally to small caps. Yesterday the market staged an impressive rally. Large and mid cap stocks surged higher. For the most part, small cap high risk plays stayed at their lows. Today, with a pause in the market and large caps taking a break, some money is rotating into small caps. While they have not really taken off, they are inching higher and if the rally continues, choice names are definitely a buy.
The key to finding a perfect small cap big percentage gainer is looking for past high fliers that were crushed, not because of negative stock specific news but because the market collapsed. A true intelligent small cap investor knows that when a market gets weak, small caps tumble because they are the highest risk area of the market. When the market strengthens, small cap investors will rotate to the past runners, finding them and jumping on board. However, it is up to the best, elite investors to get in first.
I will list some former huge running small caps that may be headed for big gains in the coming weeks, assuming the market stabilizes. The first is OXiGENE, Inc. (NASDAQ:OXGN). The stock is currently trading at $1.50, down from $6.38 on May 13th, 2011. A combination of short sellers and market conditions crushed this beauty. While it is unlikely that the stock will get back to those highs without significant news, the drop was not company specific, thus a huge bounce is in order. It is likely this stock will make its way back over $2.00 in the near future.
AgFeed Industries, Inc. (NASDAQ:FEED) is a China small cap play that was trading at $2.05 prior to the market weakness. The stock collapsed as traders ran from risky Chinese plays. Within two weeks FEED was under a Dollar. After making a nice consolidation base, the stock now appears to be ready to head back to the $1.30 level and possibly higher. Should the markets stabilize, the risk reward here is very solid. Other small caps on watch include Seven Arts Pictures PLC (NASDAQ:SAPX), Clean Diesel Technologies, Inc. (NASDAQ:CDTI).