There's a New Small-Cap Stock on My Radar

Market participants were relieved that the PCE inflation data did not come in hotter than expected. The data were very close to the published estimates, and that was good enough to create an open gap. There is now a slight uptick in expectations for a Fed rate cut in June, but it is still close to a coin flip at 55%.

Sellers took advantage of the strength to reduce some positions, which has the indexes off their early highs, but breadth is running very strong at a bit less than 3 to 1 positive, and small-caps are leading with a gain of around 1%. There was also a buying surge in the Magnificent Seven names after a few days of sluggish behavior, although they are all off their morning highs.

There is a pretty good number of smaller stocks up more than 10%, which means that speculative buyers are still sticking around. There are also a few breakout plays such as OktaOKTA and Celsius Holdings  CELH for the momentum buyers.

The question now is whether this is just a reprieve for the bulls before technical conditions continue to deteriorate. While there have been signs recently that momentum is slowing for the indexes, the rotational action has offset the softness in the Magnificent Seven. Rotational action tends to shift abruptly, so it is hard to trust the rebound in small-caps Thursday.

I'm primarily focused on positioning right now. There are a number of small-cap stocks that I follow closely with earnings reports coming up, including Xeris Biopharma  XERS , Eltek ELTK , and Humacyte HUMA , and I'm adjusting position sizes in front of the news.

Meanwhile, I have a new name on my radar that posted earnings Wednesday night. ADMA Biologics ADMA , which Bret Jensen recently discussed, develops and manufactures specialty plasma-based biologics for the treatment and prevention of infectious diseases.

ADMA just turned profitable and currently has EPS estimates of $0.27 for 2024 and $0.44 for 2025. Management is very conservative with guidance, and I expect those numbers to go up fairly fast. Raymond James increased its price target on the stock to $8 from $6, which I believe is low.

When I identify a stock like ADMA, I don't just rush in and buy a big position. I'll start with a smaller position and then look to build and trade it as the action develops. Market conditions are going to have an impact on it, and I want to see how the chart develops.

The positive response to the PCE news appears to be fading, and I'm going to tighten up some of my stops.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider several names mentioned here to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

At the time of publication, Rev Shark is long XERS, ELTK, HUMA and ADMA.