Stocks started positive in morning trading, but quickly gave ground before the noon lunch hour Eastern time and never recovered. The Dow Jones Industrials were down 1.25% to close at 8,504; the Nasdaq closed down 1.11% at 1,796; and the S&P 500 shed 1.27% to end the day at 912.

Small-cap stocks, as measured by the Russell 2000 Index, fared worse, giving up 1.22% to close at 505.

Today's small-cap gainers were lead by STEC Inc (Nasdaq:STEC), a California-based memory chip maker, up 29%. STEC increased its Q2 financial outlook stating that improved sales of its ZeusIOPS solid-state drive product line had caused the company to revision its guidance. STEC now expects adjusted earnings of between 32 and 36 cents per share.

Other small-caps showing leadership include La-Z-Boy, (NYSE:LZB) up 22% on news that it returned to profitability in Q4 and beating analysts' EPS estimates; Merge Healthcare (Nasdaq:MRGE) up 17%; Alvarion (Nasdaq:ALVR) up 16%; and Satyam Computer Services (NYSE:SAY) up 16%.

Small-cap decliners were lead by Matrixx Initiatives (Nasdaq:MTXX) down 70% on receiving a warning from the U.S. Food and Drug Administration (FDA) to discontinue selling it's Zicam product and for consumer to stop using it immediately. The FDA has indicated that there have been 130 reported cases of people losing the sense of smell after using the products. Zicam is a leading product for preventing and minimizing the effects of the common cold when the patient uses the product at the first symptoms of a cold. The FDA action affects only the nasal swabs and gels and does not apply to the tablets or lozenges.

Although Matrixx is on record stating that the product does not cause a loss of smell the company has indicated that it will consider withdrawing the products in questions, which in total account for roughly 40 percent of its sales.

Other small-cap decliners include Myriad Pharmaceuticals (Nasdaq:MYRXV) down 32%; Magyar Bancorp (Nasdaq:MGYR) down 34%; A-Power Energy Generation Systems (Nasdaq:APWR) down 24% on news that first quarter earnings fell by nearly half; and two of yesterday's leaders: Jazz Pharmaceuticals (Nasdaq:JAZZ) down 17% and QEP (Nasdaq:QEPC) down 15%.

*****Jason Cimpl, technical analyst at TradeMaster Daily Stock Alerts, called yesterday's 2.5% drop on the S&P 500 to a tee. If you watched the video chart analysis from Jason that I included in Friday's Daily Profit, then you were ready for Monday's sell-off. I hope you were able to profit from it.

And bonus points to Jason for calling the closing level of the S&P within 2 points. I think Jason's video chart analysis will be a welcome addition to Daily Profit. Look for the next one in Friday's edition.

******If it weren't for gasoline, prices at the wholesale level would have fallen 0.1% in May. Still, prices are off 5% from this time last year. That's the biggest drop in 50 years. Is this good news?

Not for corporate profits, and so probably not for valuations. And not for the Fed, who's terrified of deflation. But for the crowd expecting runaway inflation because of a weaker dollar and rising interest rates, it might be.

It should be obvious that weak demand and high unemployment will keep a lid on prices in the short-term. Remember too that it took 18 months before rising oil prices really started to find their way into the prices of consumer goods, too. Right now, inflation expectations are just that - expectations.

Still, those expectations have helped oil and commodity prices run higher…

*****And inflation expectations aren't the only thing driving commodity prices higher. Demand from emerging markets, especially China and India, remains fairly strong. After all, these countries have money to spend to help re-inflate their economies.

Jason Cimpl will be discussing the outlook for inflation and commodity prices in a special video conference next Wednesday, June 24 at 6:00 P.M. It's totally free, and Jason will share his top gold stocks with attendees (yes, we see significant upside for certain gold stocks). This video conference is free of charge, you can sign up HERE.

*****The Ural mountain city of Yekaterinburg, Russia takes center stage in global economic news today. The BRIC countries--Brazil, Russia, India and China--are holding their first ever summit starting today. The U.S. is not invited.

That's because these emerging economic giants want more control over the global economy. And with a combined 42% of global currency reserves, they are in position to throw their weight around a little.

It's no secret that the U.S. depends on these countries to buy our Treasuries and fund our bailout and stimulus plans, not to mention our trade deficit. So the news that these countries will be discussing plans to diversify away from American bonds and buy IMF bonds is important for the U.S. dollar. Just last week Brazil pledged $10 billion purchase IMF bonds. That's a far cry from the day's when Brazil was synonymous with hyper-inflation and a poster child for coming to the developed world hat-in-hand.

But there's more to the story, especially with China. Some estimate that China has as much as $1.3 trillion of foreign reserves, most of it in dollars. And right now, China is putting that money to work stockpiling commodities and supporting its economy. So buying Chinese stocks, especially Chinese commodity stocks, is a great idea right now.

At SmallCapInvestor PRO, we just loaded up on Chinese stocks. I believe this is the one reliable growth story in the world today. I've got a Special Report ready with my top investment recommendations; you can get a copy HERE.

source : http://www.smallcapinvestor.com