Wow. That's all I can say. Yesterday's market movement was nothing short of spectacular. The Russell 2000small-cap index gapped down 1% to open the day at 624.81. The index then fell to 620.61, before rallying at 12:00pm and closed the day higher by two points at $630.46. That was a nice reversal, and the positive momentum set up a nice pop for many stocks in the Small Cap Investor PRO portfolio this morning.  

Last week I wrote, "I'm targeting two key price levels: an upward move through 620 would likely lead to a retest of 660, while a break of 580 should tell investors to look out below.  Should the index move thorough 620, then 660, I'm looking for a big move higher to 725. Conversely, a drop to 580, then 550, increases the possibility of a bigger drop to 525." 

The fact that the Russell broke through 620 last Tuesday then rallied off the 620 resistance level yesterday, increases the chances that the index is setting up a new trading range with 620 as support. This type of reversal is a bullish sign, and the fact that small-caps led the rise has me whistling in the wind this morning. 

And speaking of wind, the storm that blew through the northeast over the last couple of days also demonstrated an intense reversal. On Wednesday morning I woke up to 14 inches of the heaviest snow I've seen in years. By Thursday morning it was pouring rain, and the snow was vanishing before my eyes. Then last night, the wind picked up to over 50 mph and shook the house on its foundation. This morning? Back to where we began, just a few inches of snow and bear ground showing through. The difference in the reversals is that small-caps rallied, while my hopes of a powder-infused white weekend in Vermont fizzled. I guess we can't win them all! 

We have a great dialogue going here in Small Cap Investor Daily on Republic Airways Holdings (NASDAQ: RJET). You responses to this week's discussion of the pummeled small-cap airline stock keep pouring in. When there is this much interest in a particular stock, I'm going to run with it. So today I'm going to share a few more interesting and insightful responses from your fellow readers.

But before I open up the floor, take a quick look at a chart of Republic Airways stock dating back to the beginning of 2005. A brief look at the stock's historical performance will help put our discussion into context, and round out today's issue. 

Of course, we want to know how this stock is doing right now too. We've been tracking the stock's performance as of the close on Friday February 19th when it was trading at $5.34 per share. As of yesterday's close the stock is down 4.3%. How does this compare to the industry? The AMEX Airline Index (AMEX: XAL) provides a nice benchmark since it tracks the aggregate performance of major U.S. and international airlines. You can find out more about the companies in the index on the Yahoo! Finance website (note that Republic Airways is not part of the index). Since last Friday's close, the XAL is essentially flat, so Republic Airways is underperforming.  

 

 One reader wrote in with these comments and questions. "I read your analysis of Republic [Airways] with great interest. The stock seems speculative but can the company go bankrupt? It has not provided financial statements for December but the upside is that it bought Frontier for [the] price of a song and could leverage its acquisitions for long run stability. Any further comments or insight might be greatly appreciated." 

This writer's question about the risk of bankruptcy is sure to resonate with shareholders and potential Republic investors. It's an ugly word, but is has been so common with airlines that it bears consideration. Here's the thing, bankruptcy with airlines is almost always on the table. It might not be today, or tomorrow, but the threat is always looming. Since Congress deregulated the airline industry in 1978, hundreds of entrepreneurs have started airlines. Many of them have failed.  

Take a look at the Air Transportation Association's website for a list of airline companies that have filed for bankruptcy or stopped service and you'll see what I mean. I counted over 180 since 1979, with 46 since 2000. Frontier airlines (a company Republic Airways just purchased) made the list twice. The first time Frontier failed was in 1986 when it helped to bring down one of the fastest growing airlines in history, Peoples Express. 

Here’s the scoop on this morning Briefing – U.S. stock index down after rating agencies said they may downgrade Greece’s sovereign debt, reigniting concerns over possible defaults in the euro zone that have dogged markets in the recent week or so. Moody’s said a downgrade of 1 or 2 notches is possible in the next month. As a result Oil has dropped on the dollar rise. For today – the SPX is hitting right up against resistance. The likely move is going to be much lower and heading back down to near the lows from the recent bottom.

Today there’s the report on employment and Federal Reserve Chairman Ben Bernanke’s second day of testimony.

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Essentially, the company provides a secure storage solution for personal medical records. As Chad noted, this is an industry that is receiving a ton of support from the Obama Campaign. President Obama said he wants all medical records to be digitized by 2014. The push has created huge opportunities for digital medical record companies like General Electric.

But as you would expect, I prefer the approach of investing in the smaller players since they represent the greatest profit potential. It's hard for even a big market opportunity to move the needle on General Electric's stock given its $15.9 billion market cap, and the fact that digital medical records are just a very small portion of the company's overall business.

I really like the industry, but Medefile is simply too small for me. The company is in a great market that is likely to grow in the next couple of years, so it's worth keeping an eye on it. But for me the risks are too high at the moment to make an investment.   

Futures look to be edging higher this morning as Ben Bernanke goes to Capitol Hill to address Congress yet again. For now the intra-day chart looks like this. Support and resistance are fairly similar in distance away so it will be all on Uncle Ben to devlier for the Bulls today.

Bernanke will deliver his twice-a-year economic report to Congress, will be under more pressure than usual. It’s an election year for lawmakers, whose constituents face near-double-digit unemployment, record-high home foreclosures and tough-to-get credit, especially for small businesses. The unemployment rate, now at 9.7 percent, is expected to drop only slowly. Many economists think it will take until the middle of this decade for the jobless rate to decline to a more normal 5.5 percent to 6 percent.

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As investors, we need to keep an eye on the macro-economic picture since we know the performance of most companies tends to follow broad trends. The occasional exceptions are massive multi-national companies like Wal-Mart (NYSE: WMT) which regularly posts annual sales greater then the economies of 140 countries, according to the International Monetary Fund.  

With this big picture view in mind let's take a quick look at what's making news today. Trading in foreign markets was mixed for the second day in a row. Asia indices were mostly higher, but Japanese, Australian, and European indices are all lower. U.S. stocks have also been trading sideways for most of the morning in a continuation of yesterday's market movement.  

Yesterday small-cap trading followed the broad trend as the iShares Russell 2000 Index (NYSE: IWM) lost a quarter percentage point to close at $63.10 and the iShares SmallCap 600 (NYSE: IJR) closed flat. What does this all tell us? The market was taking a breather after a nice move higher over the last two weeks when the Russell 2000 small-cap index rose 6.4%. And it's paying attention to news again. That's a good thing; it shows that investors are not getting complacent.  

This morning at 9:00 housing price information was released. The Standard & Poor's/Case-Shiller 20-city home price index rose 0.3% from November to December, not a huge move higher but an important baby step for our fledgling economic recovery. We've discussed in Small Cap Investor Daily how a recovery in the housing market here in the U.S. is absolutely necessary for a sustained recovery, and this is a good opportunity to reiterate the point. In fact, a bleak housing market and high unemployment are the two major drags on our economy at the moment, so any positive developments on these fronts should help support investor confidence in an economic recovery. 

The the Russell has been on a 9-day winning streak – the most consecutive closes higher in over 3 years! Odds clearly favor a lower close in the near futures and each day higher only means the odds will increase.

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The EEM iShares emerging market ETF has recently rallied on speculation Federal Reserve Chairman Bernanke may keep interest rates near record lows. It’s actually been on a good rally along with the markets since early February. A target somewhere around $41 may not be out of the question.

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For the last eight consecutive trading days and the second consecutive week the Russell 2000 small cap index has roared higher. Last Friday the Russell 2000 rose another .4% to close at 632. The index hasn't been at this level since January 20th, a full month ago. And with both European and Asian markets rising during Monday's trading session, I expect we'll see similar gains from U.S. small-cap stocks today. The iShares Russell 2000 ETF (NYSE: IWM) has followed suit, rising eight straight days to finish the week at $63.06. This close marks the ETF's first close above $63 since January 20th.   

 ***I wrote in Friday's issue of Small Cap Investor Daily that I'll be taking a closer look at individual stocks again. You sent in some interesting requests over the weekend so let's move on and take a look in the mailbag. First up is Small Cap Investor Pro subscriber Patricio.  

"Dear Ian, as a Small Cap Investor Pro subscriber I follow regularly your analysis and points of view on the Small Cap Market Indices and companies. I would really appreciate your thoughts on Republic Airways Inc. (NASDAQ: RJET), the largest regional carrier in the USA. The stock has been hammered over the past few weeks, but has recovered lately. It has a dominant market share and what I consider an attractive P/E ratio. Thank you in advance." 

As Patricio noted, Republic Airways is a regional airline and the company has a market cap of $184 million. The company owns Chautauqua Airlines, Frontier Airlines, Lynx Aviation, Midwest Airlines, Republic Airlines and Shuttle America. 

The market continued its run higher yesterday and technology and small caps were the clear leaders again; a bullish sign for the market. The Russell 2000 broke through 620-625 price resistance on Wednesday and closed above 625 yesterday making small-cap investors happy indeed. If the index can hold 625 today, it is likely setting up for a move that will take it even higher. For reference, recall that Russell topped out at 847 in May of 2007 and bottomed on May 9, 2009 at 343.

I wrote in Tuesday's issue of Small Cap Investor Daily that, "we should expect the {Russell 2000 small-cap} index to trade in a near-term range between 660 and 550. Within that range, I'm targeting two key price levels: an upward move through 620 would likely lead to a retest of 660, while a break of 580 should tell investors to look out below.  Should the index move thorough 620, then 660, I'm looking for a big move higher to 725. Conversely, a drop to 580, then 550, increases the possibility of a bigger drop to 525."

So far, it looks like the index is heading higher, although buying volume has been light this week. I suspect this means many investors who were short particular stocks are covering their positions...

The USD Index has been strong over the last couple months but recently showed a bearish MACD cross on the daily chart. From here a move down to support is highly probable.

One of the key developments to note is in Gold, which drew strong support recently and could be ahead of the turn in the USD. Nevertheless, gold will need to break resistance soon.

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It seems like every financial journal or publication has been extolling the benefits of gold over the last year. Sometimes widespread acceptance of a trend is a sure sign of a bubble waiting to pop. But that’s not the case with the precious metal right now, especially if you play the trend by investing in junior gold miners.  

It's true that gold miners stand to make big profits if the price of gold continues to increase from its current price of $1,120 an ounce. But even if it doesn't, these little companies still maintain big margins that ultimately trickle down to earnings. That’s because their gold recovery costs are essentially fixed - everything above those costs is pure gravy.  

The worst thing investors can do right now is to ignore this trend. Just because you weren’t buying gold at $850 or $1,000 doesn’t mean you missed the boat. And waiting will only make it worse because a big pullback just isn’t likely to happen.  But what is likely is that investors who buy and maintain positions in strong gold mining companies will be sitting on nice gains in a few years, if not a few months. And the best investments right now are the junior miners...