{"id":28975,"date":"2012-04-11T23:18:50","date_gmt":"2012-04-12T03:18:50","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/04\/the-small-cap-effect\/"},"modified":"2012-04-11T23:18:50","modified_gmt":"2012-04-12T03:18:50","slug":"the-small-cap-effect","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/04\/11\/the-small-cap-effect\/","title":{"rendered":"The Small Cap Effect"},"content":{"rendered":"

By MoneyMorning.com.au<\/a><\/strong><\/p>\n

Often times in the small-cap market<\/strong> you’ll see companies rapidly spike on the back of a rumour and get issued a speeding ticket.<\/p>\n

Sometimes it’s a case of investors buying the rumour ahead of the news. But not always.<\/p>\n

But there is a benefit to this share price surge – liquidity. <\/p>\n

<\/span>
\nThe more liquid a stock is the better the chance you have of being able to buy shares in it at the price you want – and the less volatile the price will be as other investors buy and sell around you. <\/p>\n

In our view, this sort of price movement can be the beginning of the share price being “de-risked”. That term is unique to commodity projects. When a resource is converted into a reserve (proved up by reliable drilling results) the project becomes more certain.<\/p>\n

The increased certainty usually results in the share price going up.<\/p>\n

This is all part of what happens when a share price is “de-risked”. And it’s not just resources companies. <\/p>\n

It can happen to any small company when it starts to hit its straps. It’s what’s known as the small-cap effect<\/strong>. The diagram below will help you see what I mean:<\/p>\n

\"\"<\/div>\n<\/p>\n

What you see is like the chart DNA of a successful small-cap company. Granted, not every winner goes through this predictable pattern. But many do. When you see the pattern forming, it can help you time your entry into a share at the ideal time for maximum profits.<\/p>\n

Please note, it’s not essential that you buy a stock the moment it hits the bottom of a range – although if you want to take that kind of punt you can.<\/p>\n

Most of the time, what you’re looking for – and what we try to do in Australian Small-Cap Investigator<\/a><\/em> each month – is buy into a stock at the beginning of an uptrend… when it’s in the “buying zone”. Any buying zone will do, although some moves are bigger than others.<\/p>\n

But the small-cap effect isn’t a once-off event for a stock. It can happen in waves to the same stock many times over. For instance a stock will usually rally on the back of an upbeat announcement – such as a resource<\/a> discovery.<\/p>\n

Next the share price may fall back as the initial excitement wanes. But because the discovery has taken the stock to a new level, it’s not often the stock price will fall all the way back.<\/p>\n

From this point the stock can tread water as investors wait for the next exciting news. This period can last days, weeks, months or even years. <\/p>\n

But once the next news breaks, the stock can take off again… and quick.<\/p>\n

For the most part you want to get in early, before the real price movement occurs.<\/p>\n

Kris Sayce
\nEditor, Australian Small Cap Investigator<\/strong><\/p>\n

From the Archives…<\/em><\/strong><\/p>\n

Disruptive Technology Stocks For Smart Small-Cap Investors<\/a>
\n2012-04-06 – Kris Sayce <\/p>\n

ASX 200: This Market is Toast<\/a>
\n2012-04-05 – Murray Dawes <\/p>\n

Why Every Bank Will Soon Be a Tax Collector for Every Government Everywhere<\/a>
\n2012-04-04 – Merryn Somerset Webb <\/p>\n

Not Even Saudi Arabia Can Save Us From High Oil Prices<\/a>
\n2012-04-03 – Jason Simpkins <\/p>\n

Good News For Oil and Resource Investors<\/a>
\n2012-04-02 – Dr. Alex Cowie <\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nThe Small Cap Effect <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au Often times in the small-cap market you’ll see companies rapidly spike on the back of a rumour and get issued a speeding ticket. Sometimes it’s a case of investors buying the rumour ahead of the news. But not always. But there is a benefit to this share price surge – liquidity. The more … <\/p>\n

Continue reading “The Small Cap Effect”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-28975","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/28975","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=28975"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/28975\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=28975"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=28975"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=28975"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}