Small-cap Tech Stock Returns Excellent, But Have You Missed the Boat?

By: profitconfidential | Posted: 17th February 2011

One very good trend that I’m seeing this earnings season is a strong

resurgence in business conditions among small-cap technology companies. This strength is

occurring in the semiconductor industry as well as in the networking and telecommunication

sectors. It’s a good sign for the domestic economy and business outlooks are improving.

Because the stock market’s been so strong lately, most of the small-cap technology

companies that are reporting good news have already experienced major upward price moves in

their shares. There isn’t a lot of value out there and this makes life a lot more difficult

for stock-pickers. Most of the trades in the marketplace now are momentum trades and, while

this kind of action can be profitable, you have to be ready to jump ship at any time.

Momentum investing isn’t easy.

Many analysts, including myself, expected the technology sector as a whole to do much

better than it did last year. The recovery in corporate IT spending definitely took longer

than most people thought, even though big companies have been sitting on piles of cash.

With corporations now spending on equipment and services, and consumers buying at the

retail level, there’s a trickle-down effect taking place and it’s great for the small-cap

technology sector.

But again, I come back to the investor’s view. Business is getting better and that’s great.

But, where are the good investment opportunities? Where can I buy low with the goal of

selling higher? The answer is that you can’t very easily in this market. We’re not in a new

bull market. This is a bear market rally.

So, I want to reiterate a previous point about playing the market rather than playing

individual stocks. In this kind of environment, with the current outlook and current

monetary policy, trading the market seems to me like a worthier strategy than trying to

pick individual stocks. Sure, there are great stocks out there to own, but I’m saying that

the probability of generating successful returns now favors buying and selling the market,

rather than individual stocks, which, for the most part, have already gone up in price.

I’ve been saying for months that investors should be long and I maintain this positive

outlook for the near term. Investors want to be buyers in this market, because there’s

nothing else to invest in and there’s a lot of hope for the future. The stock market is

definitely due for a correction, however, so keep this in mind if you’re buying and

selling.
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Tags: stock market, resurgence, bear market, technology companies, monetary policy, small cap, business conditions, outlooks