Green close before Christmas in a rare tight range
Small-cap stocks edged higher Wednesday in an exceptionally quiet, tight-range pre-holiday session. A mixed bag of economic data failed to spark trading fervor in either direction, while slumping energy and commodity markets acted as a mild drag on the market. The Russell 2000 (NYSE:IWM) closed up 1.85, or 0.4% at 470.49, snapping a two-day losing streak in an abbreviated session before the Christmas holiday.
A fresh batch of economic releases this morning came in predictably awful, but some segments of the data weren’t as gloomy as feared, which allowed bargain hunters the courage to snap up a few beaten down stocks in what turned out to be one of the dullest sessions in months. The price range in the Russell today amounted to less than 8 handles, easily the thinnest motion in what has been a raucous four-month time frame.
Looking at broad market sector activity today, the best performing groups were seen in airlines, brewers, footwear companies, department stores, electronic components, diverse financial firms and general merchandise stores. On the flip side, the worst performers were coal stocks, homebuilders, aluminum companies, insurance firms, industrial conglomerates, construction materials, real estate investment trusts and real estate services firms.
Crude oil prices continue to slump, pushing down despite a surprising drop today on weekly inventories as energy traders continue to fret about a recession for major customers like the U.S., Japan and the U.K. and slowing demand out of China. Elsewhere on the commodity front, copper prices edged down to four-year lows in London trading, which is a worry point because copper is considered a nice proxy for the world economy. Even though crude oil cash prices have been plunging of late, energy stocks have been trying to hang tough and only dropped about 0.5% today.
Market watchers finished off a busy two-day stretch on the data front as the government crammed in a bunch of reports early to account for Thursday’s holiday. As one would expect in a recession that is now a year old in the U.S., the reports on economic activity were gloomy. On Tuesday, the government said that third quarter growth fell 0.5%, which marked the biggest quarter-to-quarter decline since the 9/11 attacks, and GDP is expected to dramatically contract in the fourth quarter. Then today, it was reported that weekly unemployment claims soared to 586,000 the week before Christmas, the highest level in 26 years. Traders right now are in a frame of mind that says bad economic numbers are not a surprise, so they tend to shrug off worrisome headline numbers in favor of silver linings. Today’s silver lining was that the number of continuing claims wasn’t as bad as feared, and a drop in durable goods orders was much better than expected.
It was interesting to see that homebuilders and stocks tied to real estate themes struggled today, as another potential bright spot on the data front came from the weekly MBA Mortgage Application Index, which jumped 48% to the highest level in more than five years. It seems like everyone is looking to refinance right now, to take advantage of the lowest mortgage rates since June 2003. That said, it doesn’t appear to be translating into purchases of new homes as we saw in horrendous home sales data on Tuesday. If nothing else, lower monthly mortgage payments should help consumers pay off credit debt and perhaps spend a little more at the stores.
Speaking of stores, retailer stocks were a clear source of strength for the market today, but by all indications it has been a difficult holiday season that could rank as one of the worst in 40 years. Retail shares were struggling this week after untimely storms coursed through much of the country and stunted weekend shopping numbers, but perhaps a late rush this week helped perk things up a tad.
Individual small-caps of note today include Liberty Media Corp. (Nasdaq:LCAPA), which soared 46% ahead of the Christmas holiday movie releases. Alamo Group Inc. (NYSE:ALG) jumped 14% as the snow removal firm has seen a recent spate of volatile daily swings. The biggest percentage movers on the downside were dominated by small banks and financial firms. Away from those type of operations, Panhandle Oil & Gas Inc. (NYSE:PHX) slipped 7% in line with the general weak tone for energy names.
Looking at the chart picture, the market is basically waffling along in a sideways consolidation path – which is better than the bear market collapse that was highlighted by historic swoons and short-lived bounces. We probably won’t see much volume of note until the new year, so a high-volume breakout move might not take place for awhile yet, but even a light-volume price breakout in either direction would be a big event right now. The points to keep in mind are 491-497 on the upside and 416 on the downside (with 450-444 as a weigh station worth watching as well).
