Resilient rally for Russell through CPI, sentiment survey
Small-cap stocks pushed higher on the opening, lifted by a slide in crude oil prices, which extended overnight losses and moved toward $134 dollars a barrel. Equities also were underpinned by tame inflation data this morning. At 10:03 a.m. ET, the Russell 2000 (NYSE:IWM) was up 7.99, or 1.11%, at 727.82.
The Michigan sentiment survey came in below expectations and notched a fresh 28-year low amid consumer fretting about inflation and rising unemployment. Although the report appears bearish, and even though credit futures edged off lows, the stock market had surprisingly little immediate reaction to the number.
CPI data came out before the regular opening this morning, and although the headline figure was slightly above the forecast at 0.6%, the “core” rate, which excludes food and energy prices, was in line with expectations and the market was able to extend overnight gains after the inflation report was released. CPI on a year-over-year basis was up 4.2%, which was above the median estimate of 3.9%. These numbers might have usually been a little troubling to the stock market, but they weren’t a shock and there is some thought that if inflation remains the focal point for the Federal Reserve, it will speed up the tightening timeline, and therefore boost the dollar. However, there are a lot of hurdles to cross on that line of thinking.
Speaking of the U.S. dollar, the greenback rallied against the euro, gaining more than 100 basis points or about 0.7% and was also at fresh highs versus the yen. The firm dollar tone was a negative early today for commodities and a positive for stocks.
Early this morning, the market digested fresh dour news on the housing front as foreclosures in May were up 48% from last year, and up 7% from April, according to RealtyTrac’s U.S. Foreclosure Market Report.
Broad market sectors on the rise early this morning include education services, steel and internet retail stocks. Meanwhile, agriculture products, regional banks, diversified banks, thrifts and mortgage shares were attracting sellers.
Small caps of note this morning include US Airways (NYSE:LCC), which was up 15% after announcing plans to slash 1,700 jobs, cut capacity and add charges. Smith & Wesson Holding Corp. (Nasdaq:SWHC) rallied 5% on the opening following solid earnings results. SORL Auto Parts Inc. (Nasdaq:SORL) was up about 10%, finally catching a bid after sinking aggressively for the last four weeks.
On the downside, McClatchy Co. (NYSE:MNI) was off about 5% early, sinking to 52-week lows.
Today marks an important session for small caps from a charting standpoint. A weekly close below 720.50 would suggest an extension of the recent breakdown into a new lower trading range, with a target to 690. If the Russell starts to wobble today and slips back below 720.50, look for support at 712.50, then at 704. Meanwhile, resistance on a bounce is at 731 and then at 735. In recent sessions, the market has been unable to sustain morning rally attempts, which means the bulls are under the test again today after the solid opening upside push.
