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Investors Warn: Be Wary of Small-Cap Rally

Stocks in this article: IWM TNA RUT TQQQ SPY

NEW YORK ( TheStreet) -- Small-cap stocks caught a bid on Monday after madame Fed Chairman Janet Yellen's dovish speech renewed risk appetites and belief in the continued bull market. But investors on StockTwits saw reason to be wary.

iShares Russell 2000 (IWM) rose nearly 2% by the end of trading. Direxion Daily Small-Cap Bull (TNA) an ETF that seeks to return three times the gains of the small caps it tracks, rose nearly 6%.

Intraday market dip bought very quickly today. Change of character. This week should see us into new highs. $RUT $COMP $DJIA $QQQ -- BullTrade Corp (@BullTradeDotCom) Mar. 31 at 02:55 PM

Some cashtaggers on StockTwits said the action in small caps showed investors we're still willing to be on hyper-growth and that the five-year bull market was far from over.

$RUT Looks like market got its bullish reversal on last day of month. $TNA $SPY $TQQQ -- BumblebeeCharts (@bumblebeecharts) Mar. 31 at 01:18 PM

However, most investors said that the action was just a knee-jerk positive reaction to Yellen easing fears of a rate hike early next year. They warned that it was unwise to bet on hyper growth in small caps when the underlying economy still showed signs of struggle. They also said that valuations of companies with market capitalizations of less than $2 billion needed to come down, particularly those of speculative biotech firms with drugs awaiting approval.

Play defense and prepare for any type of crash/correction $spy $qqq $iwm $tlt -- NextTrade1122 (@NextTrade1122) Mar. 31 at 02:56 PM

Some cashtaggers said that many companies had already taken down prior earnings guidance after seeing softer-than-expected demand.

$IWM $SPY Company earnings warnings near record levels as Q1 reports loom -- A B (@zanadu007) Mar. 31 at 03:24 PM

Sentiment on the IWM was 79% bearish, according to StockTwits' analytics.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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