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(Small) Capping It Off?


March of 2000?!?


Kevin noted earlier today in a Buzz & Banter post that micro-cap stocks are getting an increasing amount of attention. While it is difficult to obtain reliable information on the smallest of stocks, the Nasdaq does make available some data for stocks that trade on the Nasdaq Small Cap Market. These are not micro-caps per se, but they are companies not able, for whatever reason, to make it to the Nasdaq National Market.

The chart below shows the number of trades on the Small Cap Market over the past six years. Please note that this is not volume, it is the number of trades. On the chart, daily trade activity is in blue, and the Nasdaq 100 is the black line.

A few weeks ago, there were nearly 350,000 trades in a single day on this market. At no other time in the past 8 years has the number of trades exceeded 300,000 in a day - except for one. In March 2000, at the height of the bull market frenzy, the number of trades hit 300,000 or more for three days. It had not approached that type of activity before or since until a few weeks ago.

Certainly this trading activity is not an ideal indicator of future market performance - in fact, it's not even a good one. But I do think it's interesting to note that the type of activity we've seen recently was a harbinger of speculative excess in the past. I can point to several reasons to be bullish and several to be bearish, but this one I would have to give to the bears.

I should note that this is obviously only one measure of small-cap activity. Others that show the total dollar amount at stake or trading in micro-cap shares may not show the same level of excess that this particular one does.

No positions in stocks mentioned.

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