Interest Is Growing for Smaller, More Speculative Names

The bears were hopeful that a grossly overbought market combined with a poor report from FedEx (FDX) would be the trigger for some selling. The indexes did open slightly soft, but the dip buyers jumped in quickly, and better-than-expected Consumer Confidence helped to heat up the buying once again.

The Dip Buyers have had so few opportunities recently that it isn't too surprising that they jumped in quickly at the open. There is a huge amount of underinvested bulls that want to add long exposure but don't like to chase entries. Instead, they will buy minor weakness instead, even though technical conditions are still extended.

The Bears wanted to use FedEx as a signal that the economy was slowing. The problem with that argument is that FedEx's softness is likely due in part to the fact that Amazon (AMZN) has created its own delivery service and no longer needs to use FedEx. The issue is increased competition rather than a slowing economy.

The bears have plenty of logical and sound reasons why this market can't continue, but when an argument is that simple and easy, it doesn't tend to work as well. Once the market shifts and there is a day or two of selling, then the bearish narrative will be embraced, but the price action needs to change before a new narrative can take hold.

I'd like to put more money to work but entries are very difficult. As I discussed in my opening post, my focus is primarily on stock picking rather than trying to time movement in the indexes. I expect increased volatility in the waning days of the year, and I want to take advantage of that by buying stocks that I favor.

One small-cap medical name that I have discussed in the past is jumping today on insider buying. I was attracted to Beyond Air (XAIR) in the past because of the aggressive insider buying, but the stock was very disappointing. I suspect the insider buying raised expectations too much, and then the company did a very poor job of communicating how long it would take for there to be substantial operational progress.

A director and the CEO bought about 1,277,000 shares at around $1.63 in the last few days, and the stock was up 17% this morning. That level becomes very obvious support, and we will see if this vote of confidence is fulfilled in the quarters ahead.

One interesting speculative play I've been studying is LianBio (LIAN) . Perceptive Advisors is a very large holder of LIAN and just turned down an offer of $4.30 for the company. The CEO and CFO just resigned, and the speculation is that the company will either liquidate or do some sort of reverse merger with another biotechnology name. Dan Rosenblum of Sharkbiotech.com thinks the company could fetch $6 or so in a deal or liquidation.

There are quite a few interesting small-caps popping up, and I'm looking for entry points to develop. These smaller, more speculative names are starting to see increased interest.

(Please note that due to factors including low market capitalization and/or insufficient public float, we consider XAIR to be a small-cap stock. 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.)

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At the time of publication, James "Rev Shark" DePorre was long XAIR, LIAN.