Mild dip for Russell
The Russell 2000 (NYSE:IWM) edged lower Monday, slipping 3.06, or 0.42%, to 718.00. Despite the dip, the market was still sitting on the second highest daily close since mid-February, and the rather tame pullback was no surprise given overbought momentum readings on daily studies after last week’s big surge.
In addition to profit-taking from short-term traders who caught the rally last week, the psychology behind today’s decline was fueled by soft earnings from the nation’s second largest bank, Bank of America (NYSE:BAC), which fell about 2.5% and was one of the biggest losers in the major broad indices. In addition, National City Corp. (NYSE:NCC), was down 27% after poor quarterly results and the general malaise in the financial sector kept ongoing frets over the credit crunch in play.
“The Fed has eased monetary policy 300 bps in a short span of time and implemented three new programs to reduce stress in the financial markets. However, market stress remains persistent,” Asha Bangalore, an economist with Northern Trust, said in an email. Bangalore noted that, “At the long and risky end, the spread between junk bonds and the yield on the 10-year U.S. Treasury note has improved” but remains elevated and a far cry from the spread levels prior to August 2007. “These indicators of market stress would have to show a significant improvement before it can be declared that the coast is clear,” she said.
In addition to credit market jitters, the market will likely continue to focus on various key headline earnings results the next couple of days, as the economic calendar is tame this week. In fact, there are no economic reports on tap until Wednesday’s existing home sales release, and although the housing market is in a slump, that data rarely triggers a large market response.
From a charting standpoint, Monday’s action was almost a picture-perfect corrective pullback to logical support, and the decent afternoon push back off that support was impressive. From a short-term perspective, action above 714 would help validate the recent rally, while any slide back below 695 would endanger the move.
The next key upside test comes in at 724 for long-term traders, and at 731 for intermediate market watchers. The 724 zone not only represents the stall area from Friday’s big rally, but corresponds with a 38.2% Fibonacci retracement target of the entire bear market collapse from last summer’s peak to the March lows.
Among small-cap issues, TigerLogic Corp. (Nasdaq:TIGR), shot up 10.6% to new 52-week highs, extending a move triggered Friday on news that the company would debut a new web search product in the coming weeks. DDi Corp. (Nasdaq:DDIC) climbed 13.8% without any apparent fresh news, and Packeteer Inc. (Nasdaq:PKTR) charged nearly 13% as the company became an acquisition target. North American Galvanizing & Co. (Nasdaq:NGA) rose over 8% following solid earnings results. Other stocks rising on high volume included Lakeland Bancorp Inc. (Nasdaq:LBAI), which was up about 7% on the glow of strong earnings last week.
Meanwhile, on the downside, MedCath Corp. (Nasdaq:MDTH) gapped lower and tumbled almost 16% following disappointing earnings, while Aladdin Knowledge Systems Ltd. (Nasdaq:ALDN) collapsed some 27% after missing earnings. Briggs and Stratton Corp. (NYSE:BGG) was down about 1.5% on heavy volume, remaining weak after a breakdown last week, and Nutraceutical Corp. (Nasdaq:NUTR) was down about 4% on heavy volume without any fresh news.
Within broad market sectors, regional banks, thrifts, education services, REITs, hotels and gold shares were the poorest performers, while agriculture, autos and coal were among the strongest market components.
