Small Cap Explosion

Generally, when micro/small caps start to take off during bear market rallies such as what the market has been doing since the beginning of March, it may signify that the rally is coming to the tail end. It may be time to batten down the hatches and seek shelter. Frivolity and froth become stylish, with Joe Smith and Annie Duke looking to strike four-baggers from Fast Growing Tech Speed Inc. and their ilk within the week because their admin's brother works at FGTS and has great expectations.

With that said, it does not mean that all micro/small caps have to come back down to earth. Some stocks go up because there may be legitimate drivers.
For example, inventories for a variety of semiconductor companies have finally come down to acceptable levels. Tech, networking, and semiconductors are in fashion. Who knows how long this can last and if it just another positive blip on our way down the gutter. Trading the downtrodden while the trend is your friend can be acceptable as long as you are keeping to your risk management guidelines and rules. You should not commit to an investment unless it is aligned with your personal risk parameters. It is also imperative that you know what your exit strategy for your real and potential positions.

Without further ado...
SPY 6 Month Chart

SPY 10 Day Chart - 5 Minute

QQQQ 7 Month Chart

AAPL 6 Month Chart

Obviously Apple is not a small cap stock but their run has been impressive while their earnings were able to overshoot estimates yet again. The strength in tech has been tremendous.

ALU 6 Month Chart

Also not a small cap with a 5.3B market cap. Their 52 week high is 7.67 so this stock has certainly seen some hard times. The intermediate and short term time frames look great for this company. I am a big fan of 4G and the investing opportunities that will come when 4G, WIMAX, etc. hit the industrialized nations. ALU, STAR and a variety of names should be able to reap the benefits of the investments that will go into the industry.

RFMD - 6 Month Chart

RFMD also has a great short and intermediate term chart. This company also does business in the cellular and communications industry.

All three tech companies listed here still need time to heal. ALU, RFMD, and to a much lesser extent AAPL have been mangled over the past two years and a return to their old prices will not come easy. ALU and RFMD still have a long ways to go. Their long term debt can be truly crippling if their cash flows start turning south.

There are plenty of risks in investing in the current environment. The key is to not let those risks take your portfolio down. Let the winners ride while keeping strict mental or physical stops in place while strangling the losers. Trading individual small cap stocks can churn stomachs so when a position turns south, do not let it continue to slide while you cross your fingers and toes hoping tomorrow will be a better day. If you are taking such actions, then simply exit the position and reevaluate. There are plenty of other opportunities out there and one position should almost never define your investing thesis. You own the stock, not the other way around. Risk management is always top priority.