Choppy trade awaiting stimulus news; bank plans
Small-cap stocks slipped back into negative territory after a brief morning rally stalled out. Large-cap indices were hovering near steady levels reflecting investor indecision about the stimulus and bank bail out package as traders basically were sitting on their hands waiting on fresh news out of Washington. At 12:19 p.m. ET, the Russell 2000 (NYSE:IWM) was down 1.82, or 0.39%, at 468.89.
Volume seemed quite light through morning activity, but it was interesting to see that bank stocks were among the strongest performers, so investors clearly weren’t too put off that a Washington rollout of the bank rescue plan was pushed back a day to allow lawmakers to focus on the stimulus debate.
The KBW Banking Index was up 2.5% at mid-session, and regional banks were on a roll, hoping that the rescue plan would avert nationalization of the big banks that battling for survival and also prop up smaller banks bogged down by tight credit and hurt by toxic assets. Small-cap regional bank Fifth Third Bancorp (Nasdaq:FITB) jumped 12.5%, and was clearly not rattled by a price cut on the stock from Morgan Stanley. Small-cap regional bank Huntington Bancshares Inc. (Nasdaq:HBAN) jumped 22%, one of the largest percentage movers within the group.
Energy shares were another source of strength today, with the Energy Select Sector SPDR Fund up 1.3% at midday, helped along by a rise in crude oil prices amid talk of further OPEC production cutbacks. The U.S. dollar was down today, providing support to commodity themes as hope for a bank bail out package spurred some reduction in safe-haven bets that had boosted the dollar. High-yielding currencies are often closely tied to commodities, so the two themes worked hand in hand. For example, the Aussie dollar was up about 1% against the greenback, while New Zealand’s battered kiwi rallied some 2% against the buck. Both the Australian and New Zealand economies have key ties to commodity exports.
Despite the upside bump from banks and energy, small caps were still struggling overall and were clearly lagging the large-cap stocks. Homebuilders, retailers, apparel firms, health-care facilities and electronic component companies were down at midday, pulling small caps down as well.
On the homebuilder front, the ISE Homebuilder Index was off 1.3%, with similar losses seen for small-cap builders such as KB Home (NYSE:KB) and Lennar Corp. (NYSE:LEN). Even bigger losses were seen for small-cap homebuilder Centex Corp. (NYSE:CTX), which was off 3.7%.
The light volume pullback so far today for small caps really was not that big a warning sign for the chart picture, which retains a modest upside short-term bias off Friday’s nice rally. Still, the market is struggling in the shadow of a double top on daily charts from the late January peak near 474 and will need to pop through that point this week to suggest a retest of 500 is the next major move. As the afternoon progresses, it will be interesting to see if volume picks up on a directional move. Look for support on a deeper pullback around 461, then at 453.50. Meanwhile, resistance is at 474 and 481.
