Russell closes in the green as crude oil rejects morning peak
Small-cap stocks pushed higher Thursday, snapping a string of four consecutive losing days as investors found relief from an intraday reversal in crude oil prices. The Russell 2000 (NYSE:IWM) closed up 5.90, or 0.81%, at 733.01.
“Today was all about reacting to crude oil. In fact, [Wednesday] was about crude oil and Friday is going to be about crude oil. When prices get this extreme at the gas pump, it really makes you wonder if we’re approaching the breaking point for the consumer. If they don’t have discretionary money to spend on things other than gas, then it’s going to have a negative rollover effect on everything else,” said Dominic Boyle, market strategist with Lind-Waldock, in a phone interview.
In order for equity markets to sustain the rally off the March lows, Boyle said, “we will have to get confirmation from crude” in the form of a top, or at least a dramatic slowdown in the escalation of energy prices. After a new record high overnight at $135 dollars a barrel, crude oil futures slipped back to about $131 during the U.S. trading session and left a little potential topping pattern by making new highs and closing lower.
As crude oil tilted off the highs today, the greenback chewed up some recent lost ground, rising about 0.6% against the euro and 1.2% versus the yen. In general, a strong dollar of late has been seen as a positive signal for equities, associated with investment flow into U.S. stocks, and potential unwinding of short dollar/long commodity trades.
In addition, some of today’s upbeat psychology may have been stoked by news of a big acquisition, with NRG Energy Inc. (NYSE:NRG) tendering a bid to purchase Calpine Corp. (NYSE:CPN) for a stock deal worth about $11 billion. If there are deals to be done in the large-cap arena, then there are certainly attractive M&A possibilities in the realm of small caps.
On the data front, this morning’s weekly claims report came and went with little investor fanfare, lost in the furor over crude oil prices. Although weekly claims came in at 365,000, which was below the 375,000 forecast, the overall jobs picture is still downbeat. Looking ahead to Friday, existing home sales numbers come out at 10:00 a.m. ET, and will provide the last data tidbit to nibble on ahead of an extended holiday weekend in the United States, as markets here will be closed Monday for the Memorial Day holiday.
Among broad market sectors today, home furnishings, health-care facilities, managed health care, IT consulting and biotech shares all attracted buyers. On the downside, automobile manufacturers took a hit, as did construction materials, photo products and tire/rubber stocks.
Retail apparel companies were in the earnings spotlight today and fared reasonably well, despite this difficult economic environment. Children’s Place Retail Stores (Nasdaq:PLCE), soared nearly 19% after beating quarterly earnings expectations. Children’s Place was on the high side of the definition of a small-cap stock before the session, and promptly added about $100 million to its market cap via today’s surge. Small-cap stock New York & Co. Ltd. (NYSE:NWY) rose over 5% on earnings news and Perry Ellis International (Nasdaq:PERY) jumped nearly 15% after investors embraced earnings news. Also on the retail front, Limited Brands (NYSE:LTD) rallied 3% while beating the Street estimate. The S&P Retail Index was basically flat on the day, so all the news on the retail front wasn’t bullish.
Among individual small-cap issues, Yucheng Technologies (Nasdaq:YTEC) jumped almost 15%, but it’s worth noting that the company has shed 41% of its value in the last couple of weeks. Roma Financial Corp. (Nasdaq:ROMA) rallied about 3% on unusually brisk volume without any fresh news to spark the activity. On the downside, Hibbett Sports Inc. (Nasdaq:HIBB) was off about 5%, pressured by slack earnings.
From a charting standpoint, today’s inside session and light volume bounce lacked conviction. Right now, the dominant chart pattern of late is the rejection of new move highs that took place earlier in the week. Look for resistance Friday at 735 and 744, with support at 726 and 720.50.
