Energy, REITS, financials power bounce
Small-cap stocks continued to grind higher into midday, with energy, real estate trusts and financial shares showing the way. A recovery bounce in crude oil and oversold conditions on energy stocks sparked money flow into that arena and provided a lift to the overall market. At 12:33 p.m. ET, the Russell 2000 (NYSE:IWM) was up 6.54, or 1.40%, at 475.34.
Looking at S&P groups so far today, the best performers were often linked to real estate, with REITS and real estate services firms posting solid gains. Small-cap REIT Developers Diversified Realty Corp. (NYSE:DDR) soared 18% as the shopping center management firm recovered from steep losses Monday. Homebuilders were also outperforming the broad market as investors looked for bargains along the real estate and construction theme.
The market was clearly divided today, with several S&P groups also posting solid declines through mid-session. The worst performers were electronic component makers, aluminum stocks, tire companies, industrial conglomerates and automobile manufacturers.
Small caps making a big move today included BigBand Networks Inc. (Nasdaq:BBND), which rallied 17% as investors appeared to be taking a stab that the video networking solutions firm will announce decent earnings Thursday afternoon. Among the various energy companies in rally mode today, natural gas firm Union Drilling Inc. (Nasdaq:UDRL) was up 13%.
Energy stocks appeared to get a lift from a recovery rally in crude oil futures, which reversed a $1 per barrel decline in overnight trading to rise about $1 dollar in U.S. trading, lifted by reports that Saudi Arabia plans to lower production even beyond the OPEC target to stabilize prices. Elsewhere on the commodities scene, gold climbed and copper reversed a big overnight decline in Asia to trend higher.
Some traders were relieved to hear Federal Reserve Chairman Ben Bernanke say this morning that the TARP funds should be directed toward toxic mortgage-backed assets, which resurrects the original spirit of the rescue plan in the first place.
In addition, this morning’s trade report showed that the deficit narrowed 28.7% in November. The narrowing of the deficit is on the surface a positive development and should trim the GDP contraction, but it should be noted that the deficit was impacted by slack demand for imports, which posted a record 12% drop because businesses aren’t spending as much in response to the recession.
The intraday chart picture for small caps shows that the Russell basically filled a rounded top pattern objective and found support above a logical zone from 464 down to 461. An afternoon breach of the latter would be a very troubling development, because there is very little convincing support below 461 until close to 450. Meanwhile, if the rally has teeth this afternoon, then look for resistance at 481, and then perhaps a minor test near 484.50 on the way back toward 491.
