Mild gains for Russell
Small-cap shares edged higher Tuesday, carefully sidestepping yet another record high in crude oil prices, analyst downgrades on brokerages and nagging concerns about pinched consumer pocketbooks. Instead, the focus was on investment money flow out of other products into stocks, yet another “better-than-advertised” key economic report on retail sales and ideas that a bevy of Federal Reserve speakers were tilted toward inflation risk versus sluggish growth worry. For the day, the Russell 2000 (NYSE:IWM) gained 3.62, or 0.49%, to 736.85. After notching the highest daily close since Jan. 3 on Monday, today small caps managed to accumulate the loftiest intraday reading since Jan. 4.
Investors were able to set aside overnight losses tied to the aforementioned analyst downgrades of brokerage firms and jitters over losses in European shares when the monthly retail sales report came out above expectations. Although the headline figure came out near the forecast at 0.2%, the ex-autos component was at 0.5%, which was well above the median projection of 0.2%. In essence, it allowed the market a little breathing room early on as traders then sorted through various Federal Reserve speakers, earnings news, crude oil gyrations and merger/acquisition news.
It was another day in which small caps outperformed large-cap index products, which is a positive signal for bulls, who might be wondering whether or not equities can extend the rally off the March lows. However, despite the small-cap edge on large caps of late, it should also be noted that volume has been anemic. Instead of the old adage “sell in May and go away,” perhaps investors just went away and didn’t bother with the selling part.
Stock market investors had to navigate through some uncertain water today, as a dizzying array of Federal Reserve speakers were out providing their perspective on monetary policy moves and the state of the economy. It’s never easy to fully decipher Federal Reserve Chairman Ben Bernanke’s state of mind, much less adding four additional policy officials into the mix. When it was all said and done, the market appeared to adopt a mindset that Fed officials remain concerned about the soft economy, but that the inflation-fighting gloves are going back on. If that pans out, then it means the economy is hopefully moving onto a better track. Obviously, that is still a very iffy scenario, as Federal Reserve San Francisco President Janet Yellen cautioned that negative growth was still possible in the second quarter.
From a charting perspective, it was an important show of strength for the Russell 2000 to close above 731 for the second consecutive session. The market has now closed above opening levels four consecutive trading days, which is relatively unusual. Short-term momentum readings are a tad overdone, which could stall upside progress, but as long as the market can now convert 731 into support on downside probing, it will validate this latest upside breakout. From here, the next area to key on the upside is around 743, which marked the previous August 2007 collapse lows. From there, 750 marks the 50% Fibonacci correction point, which is a major weigh station on the road to recovery. If the market does begin to wobble Wednesday and slips through 731, then 726 and 720.50 are the key support areas to watch.
Within broad market sectors, construction, coal, distillers and publishing companies fared best, while education services, consumer finance and diversified banks struggled. Among large caps of note, Hewlett Packard (NYSE:HPQ) was a big drag on the Dow, sinking about 4.7% as investors weren’t that pleased initially with the announced takeover of Electronic Data Systems (NYSE:EDS).
Among individual small-cap shares, the big mover today was Iomai Corp. (Nasdaq:IOMI), which more than doubled in price to top $6 dollars a share on news that Austrian vaccine maker Intercell purchased Iomai in a deal worth $189 million. Fuel Systems Solutions Inc. (Nasdaq:FSYS) jumped over 25%, gapping higher on earnings news, and management changes and DTS Inc. (Nasdaq:DTSI) climbed about 13%, also lifted by earnings results. On the downside, Artesian Resources Corp. (Nasdaq:ARTNA) was only down about 1.2%, but the company was attractive unusually heavy volume. NxStage Medical Inc. (Nasdaq:NXTM) gapped lower on brisk turnover after announcing Q1 results yesterday afternoon and Website Pros Inc. (Nasdaq:WSPI) shed 12%, gapping to the downside as earnings disappointed investors.
Looking ahead to Wednesday’s session, the market will receive key inflation data ahead of the opening at 8:30 a.m. ET. Given today’s focus on inflation analysis from all the Fedspeak, it could be an important early directional guide for equities.
