Bank worries power slide to five-week lows
Small-cap stocks remained sharply lower into mid-session trading, pulled down by sinking bank and financial stocks, which cascaded into other groups. A fresh batch of economic data this morning was weak as expected, but relatively tame and did little to lessen ongoing worries about the credit crunch and a deep recession. At 12:40 p.m. ET, the Russell 2000 (NYSE:IWM) was down 13.18, or 2.91%, at 439.99, slipping to the lowest intraday point since early December.
The slump in financial companies was reflected in the S&P groups, with the worst performing sectors coming from diversified banks, regional banks, diversified financial services firms, investment banks and specialized finance companies. Other groups struggling today included broadcasters, real estate services and trusts, coal and office electronics firms. On the upside, retailers were among the best performers so far today, and the S&P Retail Index was actually up about 1%. Internet retail, home improvement retail, home furnishing retail and automotive retailers were all among the best group performers.
The big drag on stocks this week has come from the banking arena. After getting plowed Wednesday, bank stocks were once again under a selling flurry today. The KBW Banking Index was down 8.5% at midday and the Financial Select Sector SPDR Fund was off 6.6% as Citigroup Inc. (NYSE:C), once the world’s largest bank, appears to be teetering on the edge and the new No. 1 U.S. bank, Bank of America Corp. (NYSE:BAC) says it needs money to absorb losses linked to the Merrill Lynch purchase. BAC shares were off a jaw-dropping 20%, while C was down 16%, as the latter slipped below $4 share.
Energy shares were also starting to sink heading into the afternoon, with the Energy Select Sector SPDR Fund off 2.7%. Crude oil futures tumbled below $35 a barrel to fresh contract lows today amid worries about global demand. Commodities in general were struggling today, with copper pulled into negative territory on the economy jitters and a strong dollar keeping many physical markets on the defensive. The greenback was up about 0.8% against the euro following rate cuts overnight by the European Central Bank.
Since today’s action has seen something of a volume vacuum, it’s interesting to take a peek at some stocks that are attracting solid volume, even more so on the ones that are bucking the slide to push higher on strong volume. Topping that list from a small-cap perspective is Cypress Biosciences, which gapped higher and gained 25% on unusually brisk volume on news of an FDA approval for a pain drug. Also on the pharma front, Javelin Pharmaceuticals Inc. (AMEX:JAV) rallied 21% on a volume spike amid news that the firm signed a $71 million deal for a European marketing partnership. Rocky Mountain Chocolate Factory Inc. (Nasdaq:RMCF) was seeing its best volume in more than a month, rising about 1.7% in the process. And getting back to the pharma theme, Peregrine Pharmaceuticals Inc. (Nasdaq:PPHM) climbed 7% to six-month highs on a volume burst.
As feared, there was very little convincing support below 450 and the Russell didn’t waste much time falling to 440. The early stopping point near 439.80 holds no significant chart relevance at this time, so an extension of the decline toward better support near 433 would not surprise. It is worth noting that today’s pullback was taking place on relatively light volume. The market has seen relatively hard and fast rallies off previous breaches of the 450 zone, but this marks the third major excursion on weekly studies below that point, and triple bottom formations seldom carry the same kind of power that we see in double bottom patterns. Simply put, the market needs to find reason to rally back above 450 soon or risk rolling over toward a retest of the bear market lows (or at least more significant support down near 416).
