Russell closes with strong gain
Small-cap stocks gapped higher on the opening Wednesday and never looked back, closing near the highs in an impressive display of strength. In the end, the Russell 2000 (NYSE:IWM) climbed 21.32, or 3.08% to 713.39, comfortably notching the fifth-largest one-day percentage gain of the year.
Bulls came out of the gate this morning charging amid perceptions of decent earnings releases from a couple of big name companies, and a bevy of morning economic reports didn’t contain enough bad news — or at least bad surprises — to quell the buying tide. The headline events for Wednesday’s advance actually kicked off just after the close Tuesday when earnings for Intel Corp. (Nasdaq:INTC) exceeded expectations. The market also saw earnings news from banking giant JP Morgan (NYSE:JPM) and smaller firm Wells Fargo & Co. (NYSE:WFC) as perhaps the light at the end of a dark tunnel for financial institutions that were hit hard by the recent credit crunch and the downfall of Bear Stearns.
It was heartening, if somewhat risky, to see investors find the silver lining in the aforementioned economic reports. Before the regular opening, traders were faced with CPI and Housing Starts, and then Industrial Production data early into the session. The inflation data was essentially in line with the market forecast, and housing starts were at 17-year lows, but neither report was as bad as feared. When a market can rally through suspect economic numbers, it often is a tell-tale sign that better news is around the corner.
The overall stock market rally Wednesday was paced by small-cap issues, with the Russell 2000 gaining nearly one full percent versus the rise in the Dow Jones Industrial Average, and about 0.8% more than the broad S&P 500 Index. Since small caps led the overall equities universe higher through the bull market run in 2002 to 2007, it adds extra credibility to a bounce from here if that push is once again led by small caps.
Within the small-cap category, AgFeed Industries (Nasdaq:FEED) shot higher on heavy volume, reaching all-time highs on news that the firm would acquire majority ownership of several commercial hog farms in China. RexEnergy Corp. (Nasdaq:REXX) also stormed to 52-week highs despite a dearth of fresh news to accompany the run. Pozen Inc. (Nasdaq:POZN) gapped higher on news that FDA approval for a migraine drug had been granted. The stock, however, closed on the lows against the grain of strong afternoon performance in the overall market, which suggests that profit-takers were eager to book some gains instead of adding new holdings.
On the downside Wednesday, shares of The Talbots, Inc. (NYSE:TLB) took a beating, losing some 26% after disclosing that two creditor banks were no longer willing to extend financing for the clothing company. Healthcare Services Group Inc. (Nasdaq:HCSG) gapped lower to 52-week lows and tumbled 24% following a disappointing earnings release.
Looking ahead to Thursday’s action, the Russell 2000 faces mild resistance just overhead along the 715 zone, but more important chart resistance is located near 720.50 and then at 731. Meanwhile, any slide back below 695 would call into question the validity of Wednesday’s advance, but the market does have support ahead of there at 705 and 700. It will be vital for the Russell to hold above Wednesday’s gap move in the days ahead to validate that rise as a potential important chart event. At the beginning of this review, it was noted that Wednesday’s rally marked the fifth-largest gain so far this year: small-cap stocks were lower the next day (three of the other four times), and basically flat the other time. It would be impressive if the buyers remained upbeat again on Thursday, and would break the pattern of limited upside follow through on big days so far in 2008.
