Danger Lurks in Small-Caps

Steady indeed is how the trading is going this morning, with all of the indices about flat on the day. There's nary a big-cap stock making any kind of meaningful move.

But just because the big-caps aren't doing much doesn't mean that the small-caps are stuck in the mud.

I don't know why the pundits who constantly cited the supposed "end-of-month," "end-of-quarter" and "end-of-life" markup phenomenon throughout 2004 and 2005 have lately stopped doing so. I've argued for a long time that nobody can or would want to mark up a giant-cap, liquid stock like General Electric (GE - commentary - Cramer's Take) or Wal-Mart (WMT - commentary - Cramer's Take).

But without a doubt, the little-cap stocks can and do get marked up as the year closes out.

Money managers who aren't running billions can make a serious impact on their performance if they run a ton of money into relatively illiquid stocks that are among their biggest positions. And you'll certainly see some micro- and small-cap stocks put on some big double-digit moves. Take Mamma.com (MAMA - commentary - Cramer's Take) today, for example. I don't think I'd want to try to game such action, but I certainly wouldn't want to be short many small-caps into year-end.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Mamma.com 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.

At the time of publication, the firm in which Willard is a partner had no positions in any stocks mentioned, although positions can change at any time and without notice.

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Cody Willard is the manager of CL Willard Capital Management, LLC. He is a regular guest on Fox News, CNBC and other networks, and he writes a monthly column for the Financial Times. He is also an adjunct professor at Seton Hall University and the author of TheCodyReport.net, a monthly stock market newsletter. Willard appreciates your feedback -- click here to send him an email.