GSE sizzle starts to fizzle as techs slump
Small-cap stocks remained solidly higher into mid-session trading, but the morning euphoria sparked by the Treasury Department takeover of government-sponsored enterprises (GSE) was losing steam as tech stocks failed to join the party. At 12:42 p.m. ET, the Russell 2000 (NYSE:IWM) was up 9.27, or 1.29%, at 728.12, but well below the morning peak just shy of 740.
Tech shares slipped into the red, pulling down other index products as investors in tech stocks remain concerned that a global slowdown will curb spending on technology and curb investor appetite for the latest, greatest cell phone and personal computer gadgets. In addition to the slide in tech stocks, thrifts were getting absolutely hammered as the market basically gives up hope that preferred stock holders in Fannie Mae (NYSE:FNM) or Freddie Mac (NYSE:FRE) will get anything back, as the Treasury’s takeover appears to be focused on the credit side of things. Still, optimism about the GSE news provided a lift to homebuilding stocks and home furnishing stocks on ideas that it could help put a bottom in the slumping housing market. Also, financial stocks were boosted by ideas their exposure to debt through the GSEs would now be much more secure.
Some of the upside momentum in financial shares was stalled by a big slide in Lehman Brothers Holdings Inc. (NYSE:LEH), which was spooked by fears that valuable firm assets would be sold off at fire sale prices. LEH shares were down some 18%.
In addition to thrifts, coal stocks were getting pounded again today, a theme that has been repeated often in recent days following news that hedge funds with commodity stock ties have been liquidating. Also, steel, mining, aluminum and fertilizer stocks were attracting plenty of selling interest.
Individual small caps of note included Biodel Inc. (Nasdaq:BIOD), which tumbled some 67% after a clinical trial on its diabetes drug VIAject disappointed. BIOD gapped lower and sunk on unusually heavy volume on the news. AuthenTec Inc. (Nasdaq:AUTH) also gapped lower on brisk volume and shed some 55% as investors took a dim view of the company’s updated business projection. On the upside, Gehl Co. (Nasdaq:GEHL) soared 116% on news that the firm will be purchased by French company Manitou for $331 million.
Looking at the chart picture, the Russell is in a tenuous position heading into afternoon trading. If the market closes lower on the day, it will leave a dramatic reversal failure on daily charts. In fact, any close below 726 (even a higher one) would leave some troubling chart patterns in the mix. If the market can recapture the morning upside fire, then resistance is at 742, then at 748. Meanwhile, support is just below the market at 726, then down at 720.50.
