I'm Worried ... About What Can Go Right With These Small Caps

If you are focused on "overbought" technical conditions, you are missing the real opportunities in individual stocks.

The early excitement over progress in the U.S.-Iran negotiations has faded, but indexes are hitting new highs, with the Nasdaq 100 (QQQ) leading the way with a 1.2% gain. Breadth is only around 55% positive, but what is most impressive is the long list of individual stocks trading up more than 10% and the 250 stocks at new 12-month highs.

While quite a few stocks are off their early highs due to some fear of chasing, there is strong underlying support from this rampage. FOMO is one of the most powerful forces in the stock market, because it creates a huge appetite for buying pullbacks. That support prevents a shift in trend from ever developing even when things become extended and overbought.

Trading the Earnings Reactions

As I discussed yesterday, I am focused on trading the many small-cap earnings reports hitting the market. Both biotech name TG Therapeutics Inc. (TGTX) and gold miner SSR Mining Inc. (SSRM) are trading up nicely this morning following their reports. In both cases I am looking to build longer-term positions while taking some shorter-term profits.

One of my favorite names, Xeris Biopharma Holdings Inc. (XERS) , is reporting on Thursday morning. I already have a large longer-term core position, but I am looking for an opportunity to trade the reaction to the news in the morning.

Unless there is something surprisingly bad, I will be looking to add. The company is close to starting the initial dosing of its phase 3 trial for a once-weekly subcutaneous injection of levothyroxine for hypothyroidism, which is a billion dollar market. This "levo" program is not yet included in analyst estimates, but once those numbers start appearing it should be a major catalyst.

I have several other names that report after the close, including Airgain Inc. (AIRG), Amprius Technologies Inc. (AMPX) , Core Scientific Inc. (CORZ) , and Vir Biotechnology Inc. (VIR) . Cullinan Therapeutics Inc. (CGEM) in the morning will also be of interest. While I will hold positions of various sizes into these reports, my primary focus is trading the reaction after the news.

My Game Plan

The most important thing right now is to embrace that this is a market for aggressive trading of individual stocks. The pundits do not have a clue about trading and will keep yammering about parabolic moves, extended stocks, and overbought technical conditions. They will eventually be right and the market will reverse, but the opportunity cost of trying to time that reversal is huge.

One thing I learned from Jim Cramer many years ago is that it is better to worry about what may go right rather than what can go wrong. That is how you stick with powerful momentum that will make your year if you handle it correctly.

At the time of publication, DePorre was long SSRM, TGTX, XERS, AIRG, AMPX, CORZ, VIR, CGEM.