While the exact definition of small-cap stocks can vary from brokerage house to brokerage house, small-cap stocks usually have stock market capitalization of less than $1.0 billion, but more than $400 million. Small-cap stocks sometimes see their stock market capitalization eventually exceed $1.0 billion, at which point they become large-cap stocks.

While January was one of the best months for stocks, the moves in April did some stalling, which shouldn’t be a surprise given the rapid move and the reality that the rate of gains cannot be maintained without periodic market adjustments.

My technical analysis is that stocks in an uptrend go through periods of ups and downs, which is normal and healthy as long as the subsequent highs and lows are higher on each upward wave.

You also need buying conviction on the buy side, which helps to provide the underlying strength. The continued lack of trading volume indicates apprehension.

Small-cap stocks have been impacted the most with a decline of 1.69% in April based on the close of Monday. The Russell 2000 has lost some steam after a strong start to the year and is hovering at its key 50-day moving average (MA) of 817, but threatening to break lower. My technical analysis shows possible near-term topping at above 800 and a subsequent decline to below its 20-day and 50-day MAs. The index is sitting precariously at the 50-day MA and failure to hold could see a drop to 750.

Chart courtesy of www.StockCharts.com

The chart resistance has been tough to break based on my technical analysis. The Dow Jones Industrial is hovering above 13,000, but is not on firm legs just above its 50-day MA of 13,042. The chart continues to show the overextension and the need for a market adjustment, which may be inevitable based on my technical analysis.

Chart courtesy of www.StockCharts.com

But what makes me nervous is the failure of the Dow Jones Transportation Index to follow the Dow Jones Industrial Average (DJIA) higher, as demonstrated on the chart, which is a bearish signal, based on Dow Theory. The Transport Index has breached both its 20-day and 50-day MA, which is near-term bearish according to technical analysis.

Chart courtesy of www.StockCharts.com

As far as the broader market goes, the S&P 500 has strong support at 1,360 and closed above 1,400 last Friday. My technical analysis estimates that it will not be easy to surge higher in the near term. The index has been in a sideways channel since October 2011.

The bearish divergence between price and volume on up days indicates uneasiness.

Take a look at the volume of the NASDAQ. Since the start of the year, there have only been five sessions with over two million shares traded, so this doesn’t reflect on strong confidence in the rally. My technical analysis shows that the lack of strong trading volume is indicating a red flag and the absence of any underlying strength and mass market participation in the rally.

The market breadth, representing the advancing and declining stocks on the NASDAQ, has also been on a downtrend. Market sentiment is showing some fragility in April. Watch this, as it could indicate a reversal of the market sentiment to neutral, because the chart is showing some flattening, based on my technical analysis.

As we move into May, be careful, as the six months from May to October are generally, although not always, the weakest time for stocks. My feeling is that there will continue to be excellent investing/trading opportunities, but you also need to be careful and selective.

You should also hedge against possible downside weakness. Find out how in My Favorite Strategy to Protect Your Gains From Market Risk.

My gut tells me that the stock market will soon come to a head in terms of its direction. The stock market is looking for a new catalyst and, whatever that is; share prices will advance or retreat. We’re at the beginning of the lull between earnings seasons (although many small-cap stocks are just starting to report) and economic news will take over from corporate news. I think a key stock market indicator to focus on remains the Dow Jones Transportation Average. This index keeps narrowing its trading range and just looks like it’s ready for a new direction, whatever that might be. Transportation stocks have held up incredibly well considering the price of diesel and gasoline and their earnings as a group continue to outperform.

Many view the Dow Jones Transportation Average as an “out of date” kind of index, but I view it as critical. For the most part, virtually everything in our lives comes to us by truck, rail, airplane or boat. (See My Favorite Benchmark Stocks That Lead the Stock Market.) It represents, in my view, the real pulse of the U.S. economy and, while vulnerable to the spot price of oil, strength in this index is strength in a consumer-driven economy.

Since the beginning of 2000, the Dow Jones Transportation Average has outperformed the NASDAQ, Dow Jones Industrials, and the S&P 500 Index. When technology shares imploded on the stock market beginning in 2000, the Dow Jones Transportation Average began to outperform. It did very well between 2004 and 2009, retreated with everything else during the financial crisis, then roared back to a new record high last year. Without question, this index is an important barometer on the U.S. economy and the stock market.

The Dow Jones Industrial Average is also looking pretty strong at this time. We have decent earnings growth among large-cap companies, reasonable valuations and, while the economic news continues to be mixed, I think institutional investors want to be buyers in this market. The fact of the matter is that there is nowhere else to put your money, while generating at least some return in the form of dividends in order to beat the rate of inflation. The commodity price cycle is real, but, for the most part, investing in it is higher risk and there is very little income to help cushion the exposure.

My technical analysis (which is not well-honed) views the Dow Jones Industrial Average as indicating that it wants to keep ticking higher. The Dow Jones Transportation Average looks like it’s getting tired and therefore is starting to show a bit of divergence. In the end, the stock market is going to go where institutional investors direct it. The stock market is due for a break, but, in an election year, anything is possible.

The Shanghai Composite Index (SCI) has been rallying and is up 9.3% this year as of Thursday, which is ahead of the Dow Jones Industrial and just below the S&P 500.

However, playing the Chinese capital markets involves excessive political and economic risk. The country is also stalling, but continues to grow well above other global regions, including Europe and the eurozone. My investment advice is that you need to build a well-diversified portfolio that would enable you to play Chinese growth stocks, especially small-cap stocks.

China is the second largest economy in the world and is continuing to roll along at a nice pace in spite of the country’s gross domestic product (GDP) slowing to 8.1% in the first quarter, down from 8.9% in the fourth quarter. The International Monetary Fund (IMF) estimates that the U.S. will grow its GDP by around 2.5% this year, compared to around 8.5% for China.

While the risk is high in trading Chinese stocks, especially of the small-cap variety and for smaller trading accounts given the selling of Chinese reverse merger stocks over the past year, you could also play China via some good exchange-traded funds (ETFs). If you are looking for some Chinese Internet plays, find out which stocks are the most interesting in Surfing China’s Internet for Profits.

In the ETF area, I like the PowerShares Golden Dragon Halter USX China ETF (AMEX/PGJ), which has strong small-cap components.

If you are looking for more of a blue-chip focus, take a look at the iShares FTSE/Xinhua China 25 Index (NYSE/FXI), which holds the top major companies in China. Holding this fund allows you to own large blue-chip Chinese stocks you would otherwise be unable to easily get access to unless you trade Asian markets.

The ETF is based on the Xinhua 25 Index, consisting of 25 of the largest and most liquid Chinese stocks. The FXI ETF is a relatively conservative play on Chinese stocks.

With $6.10 billion in assets as of March 31, the FXI ETF has delivered relative good results since its launch on October 5, 2004. The current yield on the FXI ETF is 2.07%.

The FXI ETF has a large-cap focus, making it more suited to conservative investors, albeit even more speculative investors should have some large-cap holdings in their portfolios for diversification purposes and should avoid having all of their holdings focused in an area.

The FXI ETF has no software or hardware stocks. The five top sectors as of March 31 include financial services (52.70%), telecommunications (18.65%), energy (14.90%), basic materials (12.93%), and industrial (0.82%).

The top four holdings have been the same since the start of 2010, so you get a sense of what areas the fund likes. The large financial portion presents a higher-risk element.

The 10 top holdings are China Mobile, China Construction Bank, Industrial And Commercial Bank of China, CNOOC, Bank of China, China Life Insurance, China Telecom, China Merchants Bank, China Shenhua Energy, and Petrochina.

The average price-earnings multiple is 8.92X and trading at 1.30X book value and 1.25X sales, which indicates conservative blue-chip stocks. This index is similar to the DOW.

As far as the comparative performance, the FXI ETF has done well versus its peer group, which is defined as the Asia-Pacific region, excluding Japan. The longer-term results have been fairly good, but there have been some under performance over the last five years.

Based on the net asset value, the FXI ETF has a five-year return of 3.06% versus 3.74% for the group.

The FXI ETF may work for more conservative investors looking for some blue-chip Chinese stocks. You should have a longer-term perspective due to the above-average volatility. The risk of this ETF is below average based on a 0.90 beta versus the group.

The first quarter was great for stocks. April on the other hand has not been kind to stocks so far, but it’s early. The question is: are stocks pausing and then moving higher or lower?

Is this a sucker’s rally?

The bull market is into its fourth year and my market view is that the near-term technical picture shows tough chart resistance.

The S&P 500 and Dow Jones Industrials have declined in four straight sessions, and they are searching for buying support, according to my market view.

The Russell 2000 is down 3.25% in April. The Dow is down 2.14%. More importantly, the Dow and Russell 2000 have breached below their respective 50-day moving average (MA).

Despite the near-term weakness in small-cap stocks, in my market view, I continue to feel that the smaller growth stocks, especially in technology, have the biggest upside. I discussed this in Where to Look for the Biggest Potential.

Chart courtesy of www.StockCharts.com

A market view of the S&P 500 shows a 14-week upward move. My market view is that there’s some near-term topping action and a downside break. The S&P 500 is within 11 points of its 50-day MA as of the close of Monday. My market view is that a break below could trigger additional weakness down to as low as the 100-day MA at 1.312 and 1,300, a possible correction as much as 9.4%.

My market view is not that this will happen, but that there is some technical evidence a market adjustment may be coming, especially if traders cannot find any fresh reasons to buy.

The next several days and weeks could prove critical, as stocks look for support in spite of the weak relative strength on the charts. My market view is that you should watch for some potential oversold buying support.

At this juncture, stocks need a fresh catalyst to move higher. Failing this, we could see tight trading surface as we move into the slower and historically weaker summer months.

And don’t forget there’s a historical market view that suggests traders should rotate away from stocks in May and come back in the fall for the best results. The Stock Trader’s Almanac points to the May to October six-month period as generally the weakest for stocks.

I’m optimistic towards the domestic economic renewal, but the fragility of the jobs market and U.S. housing market remain a difficult hurdle to overcome. For instance, a mere 120,000 jobs were generated in March, well below the consensus 200,000 estimate and the upwardly revised 240,000 in February. It was the first decline below 200,000 after three months. A plus is that the jobless rate fell to 8.2%. The result is not positive for a desperate jobs market that needs to generate jobs. And don’t forget the unemployed who have left the workforce unable to find work and those who are underemployed.

The focus over the next few weeks will be on the first-quarter company earnings beginning with Alcoa, Inc. (NYSE/AA) on Tuesday, followed by Google Inc. (NASDAQ/GOOG) on Thursday, along with JPMorgan Chase & Co. (NYSE/JPM) and Wells Fargo & Company (NYSE/WFC) on Friday. Earnings could dictate the direction of stocks for the majority of the summer.

The reality is that the market is jittery and, should the Q1 earnings be as bad as some expect, we could see additional downside or sideways moves.

A key to why many of the largest technology companies in the world continue to grow and get bigger is their ability to acquire crucial smaller companies along the way.

Amazon.com, Inc. (NASDAQ/AMZN), with over $7.0 billion in free cash, added Kiva Systems, Inc., a company that would increase its material handling process at its warehouses. Kiva manufactures robotic machines that handle material, which creates a more efficient process—something a high-volume business such as Amazon.com demands. The $775 million in cash to be paid is not an issue, as it is capital that will be spent.

The example of Kiva demonstrates why I like small-cap stocks with a special technology or niche. These kinds of companies are open to takeovers and price appreciation, offering a top investment opportunity.

Apple Inc. (NASDAQ/AAPL), which closed above $600.00 for the first time, announced a dividend and $10.0-billion stock buyback on Monday. For the maker of the “iPad,” money is not an issue, as the company has close to $100 billion in cash. The company is a strong investment opportunity and could easily gobble up some of its rivals, but there is really no need, as the company is clearly on top of the tablet and smartphone markets with a cult-like consumer following. With its massive war chest, Apple could also acquire some key developers of technologies used in its products; but again there is no need, as companies fight hard and innovate just to sign on with Apple.

The NASDAQ has been the top investment opportunity so far in 2012, up over 18% and showing some strong technical strength. In late 2011, I said that technology would be a critical area for investment opportunity, as this sector has provided much of the leadership over the last several years.

The key investment opportunity in small-cap technology is innovation along with a massive potential market. I like semiconductor stocks, especially those with a focus on mobility applications, as tablets and smartphone gain in market share over laptops and PCs.

For instance, in the small-cap special situations area, an investment opportunity that I may take a closer look at is Glu Mobile Inc. (NASDAQ/GLUU, $3.96; Market Cap: $254 million).

Founded in 2001, Glu Mobile is an interesting small-cap tech play that holds promise in the growing area of mobile gaming on smartphones and tablets. Spending on mobile applications is estimated at around $56.0 billion by 2016, according to Forrester Research.

Mobile platforms supported include “iOS,” “Android,” “Windows Phone,” and “Google Chrome.” Revenues from smartphone applications accounted for about 75% of the Glu Mobile’s fourth-quarter revenues, according to the company. The games are developed in-house and in conjunction with key companies such as Activision, Atari, Caesar’s and Fox.

Glu Mobile is not meant as a recommendation to buy, but only as an investment opportunity that has some traits I look for in small-cap growth stocks.

The reality is that big-name technology continues to look positive; but, for higher gains, you need to look in the small-cap area for your own top investment opportunity.

You can read more of why I feel Apple could be the stock of the decade in The Thorn in the PC Market Leader’s Side.