If you had a chance to catch the article on page C5 in yesterday's The Wall Street Journal you probably found affirmation of what you already know about small cap stocks. It seems that Russell Investments (as in the folks from the Russell 2000 index, among others) have recently re-examined the stock market's performance coming out of recessions and they indicate there's strong evidence to suggest that small cap value stocks outperform all other coming up from the bottom.

Recent experience since the market bottom on March 9, 2009 further corroborates this thesis. We've already seen that the majority of gainers on any particular day have been small caps. Just look at some of the big gainers from just this past week: MAP Pharmaceuticals (Nasdaq:MAPP), SYMS Corp. (Nasdaq:SYMS), AgFeed Industries (Nasdaq:FEED), Central Jersey Bancorp (Nasdaq:CJBK), FreeSeas, Inc. (Nasdaq:FREE), Exelixis (Nasdaq:EXEL) and Dynacq Healthcare (Nasdaq:DYII), just to name a few.

And recently an analyst from Morningstar, Bradley Kay, looked back even further to 1931 and noticed that there was a big performance difference between large cap and small cap stocks during recessions and recoveries. He further stated, "small cap stocks very much lead out of a recession."

This was my strategy in 2001 through 2003 when I started my first small cap service, Growth Report, and continues to be my focus with my SmallCapInvestor PRO service (you can get more information HERE) as we've already put in 12 out of 13 winners for the year.

The time is now to load up on small cap stocks.

In today's trading news, as of 12:00 p.m. Eastern today, the DJIA and Nasdaq are posting minor losses while the S&P 500 is just barely above even from the opening bell.

Russell 2000 Index stocks are up 0.02% at 492.32, a 43.4% increase since the March 9, 2009 lows.

Small caps leading the market today include Green Plains Renewable Energy (Nasdaq:GPRE) up 30.6% in today's trading, Penson Worldwide (Nasdaq:PNSN) up 16.5%, and J Crew Group (NYSE:JCG) up 23.9% on beating analysts' Q1 EPS expectations: JCG reported earnings per share of $0.32 while analysts called for $0.10. Analysts are now revising their full-year 2010 EPS estimate to $1.15 versus an earlier estimate of $0.54.

*****The high close for the Nasdaq since the rally began was 1,763. Yesterday's close was 1,751. For the S&P 500, the high close was 929 and it closed at 906 yesterday.

I mention these levels because they are what traders are watching. Some believe that, since the indices haven't taken out prior highs, the recovery rally is overdone and that a sharp sell-off is coming. Others say the recession is ending, the economy is improving, and there's more upside coming. To them, any weakness in stock prices is consolidation for the next move higher.

It should be remembered that the Nasdaq is still around 800 points, or 32% of its 2008 highs. The S&P 500 is 660 points, or 42% off its 2008 highs. So it's not like the indices are anywhere near prior levels. Who's to say what should be a decent target for a recovering stock market?

*****We can always check price-to-earnings ratios. (I'll use numbers from the Wall St. Journal's Market Data Center. This is one of my secret weapons, but, since I'm here to help, I'll share the link so you can bookmark it --  http://online.wsj.com/mdc/public/page/marketsdata.html#calandeco )

For the S&P 500, the trailing P/E is 15, and the forward number, based on estimates, is 15.75. For the Nasdaq, the trailing P/E is 13 and the forward number is 18.

Neither index seems extended on a price-to-earnings basis.

Oil hit a new high at $65, and inventories in the U.S. have dropped 3 weeks running. Traders believe increased demand as a result of increased economic activity is coming sooner rather than later. And bond prices have been falling, which is what you expect to see when stocks offer a more attractive risk/reward scenario.

Of course, one could also say prices fall when traders know there is a virtually unlimited supply of Treasuries hitting the market as the government needs to raise a lot of cash.

But explaining away numbers can be a bad idea. Because when we do that, we're letting our own bias creep in. That's exactly what happened last year when the drumbeat of a coming crisis started. So many pundits explained the numbers away with rosy talk.

*****The unemployment rate is nearly at 9%. Most believe double digits are inevitable. And what's worse, some are saying that high unemployment of 6%-7% may persist for years. But that doesn't necessarily mean that corporate profits will get worse from where they are now. Perhaps the current P/E ratios for the Nasdaq and the S&P 500 are appropriate. Maybe there's even some upside.

In my opinion, what's worrisome is that the next shoe to drop is still the first shoe - banks. There's no doubt that the rally for financials has come on the government's dime (that would be your tax dollars and debt to be paid by your children and grandchildren, of course). Refinances, mortgage and consumer debt modifications, investment gains from TARP money - these are all one-off windfalls. They blew in, and they will very likely blow right back out. What then?

Bank of America (NYSE:BAC) currently has a forward P/E of 10. Compound annual growth for the next 5 years is 7.6%. BAC also has $225 billion more debt than cash. Quite frankly, I don't see any upside to BAC. And that makes me worry about the downside.

*****As you know, I've pointed out moments where it looked as though stocks were about to head lower with comments like "cracks are showing" or "the news cycle is turning negative." So far, no significant downside has occurred. Of course, that doesn't mean it won't.

Consumer confidence has been steadily rising, and stock prices show it. We're also moving into the summer months, which are traditionally the worst months for stocks. 

For now, the best advice is an observation - a trend is in place until it turns. There's no reason to simply sell or take downside positions now. But keep your eye in things, apply stop losses to your positions and we'll see what happens.

If you want to get a clearer idea of what's going to be happening in the markets, be sure to check out TradeMaster's Jason Cimpl sharing his thoughts on the SPX, which tracks the S&P 500. He's calling for the near term for a bullish trend. You can view the video HERE (no registration or sign up required).

Afternoon all. It’s been another one of those flat days. We should all throw a going away party for the month of May as it’s been a “go nowhere” month. Depending on when you are looking at the charts the market could be up or down. GDP came in worse than expected this morning and treasuries still show very large signs of weakness which has sent the dollar spiralling downward. All in all, it should make for a bit of a move lower - but that has not been the case yet at least.

For most this is probably just agonizing to say the least. I personally am finding that it’s giving me more time to update positions and build new watch lists of future trades - always a good thing. If anything, all traders out there should be positioning and looking for new ideas and opportunities. In addition, I can’t be that mad at May because it’s been EXTREMELY profitable for the Option Writers Report. I’m glad that Members and I have a couple longs in our portfolio that are doing great today. Here is a chart of the madness that has been the month of MAY.

Leading today's rally in small cap stocks is FreeSeas, Inc. (Nasdaq:FREE), a Greek based operator in international dry bulk shipping, on news that Q1 earnings of $0.29 per share beat analysts estimates by $0.04 or $0.24 per share. The company attributes much of this to the upward pricing in the Dry Bulk Index. Further statements from the company indicate management's expectation to achieve profitability throughout 2009. Shares are up 26% through morning and early afternoon trading to $2.76.

Other small caps in the shipping sector posting gains today include Hornbeck Offshore Services (NYSE:HOS) up 5.6%, Diana Shipping (NYSE:DSX) up 5.75%, and Genco Shipping (NYSE:GNK) up 6.7% for the day.

(Note: for more information about profitable shipping plays check out my new report, "3 Value Play Shipping Stocks to Navigate to Calmer Waters". You can find it HERE.)

Other small caps over 20% today (as of 1:30 P.M. Eastern) are from the healthcare sector with Exelixis (Nasdaq:EXEL) posting a 21.9% gain on news of it development partnership with heavyweight drugmaker Sanofi-Aventis to work on a cancer drug. The deal is expected to be worth $140 million upfront and eventually up to $1 billion. The other health sector leader, and in third place today, is Dynacq Healthcare (Nasdaq:DYII) currently trading at $3.37 on today's gains of 21%.

As of 1:30 P.M. Eastern the DJIA is up 0.90% to 8,374.73, the Nasdaq trails it just slightly bringing in a gain of 0.82% at 1,745.20, and the S&P 500 leads both with a 1.25% gain for trading to bring it to 904.20.

*****Yesterday, it was reported that median home prices fell to $209,700 from $246,400 in April 2008. That's a steep year-over-year correction, even though prices were up from March 2009.

Today, we hear that that new home sales posted a gain, though not as big as expected.

The housing market is bottoming. How long will the bottoming process take? Common sense would say it will take a while, probably a couple years, to work off the inventory and get current delinquent loans back on track.

Persistently high unemployment rates will not help speed the recovery in housing. But at least we're seeing signs that the housing market is stabilizing. We should expect to see swings in the data, one good month could easily be followed by a bad month. It will be interesting to see how much the stock market moves on housing data going forward. I would suspect that only extreme readings would move stocks significantly.

*****The Mortgage Bankers Association reported that 9% of mortgages are delinquent. Throw in mortgage holders that are in foreclosure and it's 12%. That's a huge percentage. It's also the highest since data was tracked, starting in 1972.

It's easy to see why the numbers are so ugly - as the unemployment rate rises, fewer can afford their mortgages. And in some areas of the country the unemployed can't move to find a job because they can't sell their home. So it's no wonder that more and more economists expect a "double-dip" of recession.

74 percent of economists responding to a National Association for Business Economics survey believe the U.S. economy will grow in the 3rd Quarter. But the growth won't be strong or lasting.

A growing number of economists, including Dr. "Doom" Nouriel Roubini, believe it's likely that the U.S. economy will go back into recession in the second half of 2010, when government stimulus wears off.

*****The economic recovery is facing two major speed bumps - rising energy prices and rising interest rates. As the economy recovers, energy prices will rise, soaking up excess household funds and leaving less for discretionary spending. We've seen oil prices practically double so far this year and OPEC has announced that it feels that RIGHT NOW oil should be valued at $80 a barrel: meaning another 27% from today's $63. That's going to hurt at the pump even more. Here at the Washington, D.C. offices we're already up 40% since December with a regional average of about $2.39.

As the government continuer to sell Treasury bonds to fund the budget shortfall (over $1 trillion for 2009, and counting) and pay for stimulus initiatives, bond yields will rise, making it more expensive for consumers to get a loan. That will affect the market for big-ticket items like cars and new appliances, not to mention homes.

*****All this will have important consequences for your investments for the foreseeable future. First and foremost, it will be important to follow sector trends. Energy will remain strong, but sectors like retail, housing and consumer goods will probably remain volatile. There will be some quick, isolated opportunities here and there in those sectors, but the broader trend is not positive.

Also, risk management will be critical to success. Investors should have exit strategies in place for their investments. This is not a time to be thinking "buy and hold." Rather, if you have gains, don't be afraid to take the money and run.

*****Speaking of taking your money…just this morning I advised my Top Stock Insights advisory service members to take their 19% gains on BlackRock, Inc. (NYSE:BLK) today. BlackRock was my feature recommendation for profiting from the Treasury's Public-Private Investment Program (PPIP) to remove toxic assets from banks' balance sheet.

Several important aspects of the plan have been removed, and I suspect Treasury Secretary Geithner will abandon it altogether soon. The PPIP is simply not going to work, and for many of the reasons I've stated here in Daily Profit.

First and foremost, banks simply don't want to sell. And Geithner blew his opportunity to gain some leverage over the banks through his "stress tests." And all the bailout money didn't exactly convince banks they were in danger of failure and needed to sell.

At least Top Stock Insights readers managed to turn a profit on Geithner's failed plan. Now, we're setting our sights on India. The recent election there has set the stage for massive economic reform and jumpstart to growth.

Despite a huge jump for Indian stocks in the wake of the election results, not many investors are considering India right now. But I think that gives us a distinct advantage as India could be one of the great growth stories this year and going into the next several years. If you're interested, you can find out how to get my Special Report 3 India Stocks Set to Soar in 2009 by clicking HERE.

GM is going to file for bankruptcy protection - it’s official now I guess. But, let’s be honest, we all saw this coming. I do feel for those workers out there, but I think the end result will be best. The last week has been nothing but ups and downs one right after another. Just look at the last 10 days or so for the S&P below and you will see what I mean. This has been our crazy world for the last week but not for long…something is going to make this market move soon!

However, I am adding both short and long positions. I have already sent out the trades to members. Honestly, I couldn’t have picked a better day to enter them!

Good morning all! It’s still very early in the day but all pre-morning indicators are again pointing to a flat day in the equity markets. As a reminder, the New Option Writers report will be going out in just 3 days. It’s been highly successful already even with all the wild swings in the market these past two weeks - so try it out for 2 weeks.

Here is the updated S&P chart with support and resistance targets. As I have mentioned numerous times here, the S&P needs to close below 880 for things to get rockin on the bearz side. That’s it…point blank. So, we still have a fairly significant drop even to that level and there is a lot of data coming out just in the next two days - jobless claims and GDP stuff.

As I mentioned last night, I will be adding a couple shorts and some selective longs to the portfolio today - THAT’s RIGHT, IT’s TODAY! There are just too many great opportunities out there that cannot get passed up. Believe me when I say that the people who are involved - members - will make a ton of money over the next couple of weeks and months. Besides, you can’t make money trading IF YOU DON’T TRADE. Here is just ONE of these shorts.

Great day for the markets turning around with a complete 180 of yesterday’s rally. We still need to break 880 and the S&P 500 to get the blood really running in the streets again. Regardless, as members already know, we will be adding more short trades tomorrow in addition to some longs at the end of the week. This would be a great time - again, a GREAT TIME - to sign up for a membership and get ahead of these trades. But, for most of you out there, you will probably get too scare and miss out. Tough and straight forward but it’s the truth…

Here is the short FOREX trade that I like right now. The AUD/USD is hitting major Fib resistance. And judging by how responsive it has been in the past, I’d say it’s headed lower here very soon!

In just the last 30 mins or so the markets have sold off considerably. Across the board it looks like a free fall right now. Of course we still have some time before the close, but I think the intermediate highs are in for the rest of the week. I mentioned before that there was major resistance at 910 and as of right now, it seems to be holding strong. Take a look at this chart of the SPX intra-day.

Good morning all! First, here is the Trading Video from last night as well as the Member’s Only Portfolio Video in case you missed them. It’s still early here, but pre-market futures are trading flat again - mainly as most people are waiting for the housing data to come out at 10am. Regardless of whether its good or bad, the expectations in the numbers are what is going to be most important.

As I looked through a bunch of charts last night, I honestly couldn’t help to see that there was roughly a 70/30 split between great looking shorts and good looking longs. Some stocks are clearly still WAY over-bought, while others have had a meaningful correction to make them look more and more attractive. As I mentioned to Members, I am fairly positive that by the end of this week or very early next week I will be adding some of the better LONG positions to our portfolio. This would also be a great chance for new people to enter in here. As it stands now however, all the short term indicators are showing more bets on more downside here - so that’s where we will stay positioned for now. We have updated and tighted up most if not all of our stops on our short positions to lock in very good - not great - gains.

Below are two very cool looking charts I found and wanted to share. The first is FCL. It’s had a very clean breakout of the consolidation around $15 back in early May. Since however, it’s hit a major resistance line around $30. I see a fall back to $20 where support will be stronger.

The next one is HOC. This stock has followed this HUGE downward trendline for the better part of 2 years! Talk about trading the trend here. This has to make at least one more Higher Low if it every wants to break above the trendline in black. Interesting huh?

Okay, and finally the updated S&P 500 intra-day support and resistance number for you all. I will be watching the 921 level like a hawk today for a reversal target and you should too. These levels are very strong and I would use them to your advantage for entering you trades.