Russell retreats from new highs
Small-cap stocks edged lower Monday, unable to sustain an intraday run to fresh five-month highs as longs took profits, record crude oil prices deterred new buyers and tech stocks reversed course. In the end, the Russell 2000 (NYSE:IWM) dipped 2.72, or 0.37%, to 738.45.
Small-caps trailed buying enthusiasm in large caps much of the day, which was a caution sign that the intraday push was on tenuous footing. When tech stocks started to reverse course, recoiling from new highs, it put a chill on buyers in most of the major index products. Within large-cap tech stocks, the spotlight was on SanDisk Corp. (Nasdaq:SNDK), which tumbled about 7.6% amid concerns about the consumer spending outlook.
Crude oil prices continue to be a focal point for stock market traders as the economy teeters on a tightrope of recovery, balancing higher energy and food costs versus the spending habits of strapped consumers. Crude oil prices jumped to a fresh record high this morning and closed at a new all-time peak above $127 dollars a barrel. Gasoline pump prices around the nation have been spiking higher in recent days, and prices in the Chicago metropolitan area moved past $4 dollars a gallon this weekend, an ominous sign heading toward the peak summer driving and vacation season.
This morning’s leading indicators report may have brought a few stray buyers out of the woods, but that release seldom has a dynamic impact on immediate trading decisions as most of the data is considered dated. For instance, today’s leading indicators report was for the April time frame, and although the headline figure was above the forecast, it didn’t seem to truly capture investor attention when it was released. Looking ahead to Tuesday’s action, the morning PPI report has a better chance to influence market direction and trader psychology. In addition, Federal Reserve Gov. Donald Kohn will talk about the economic outlook at 9:00 a.m. ET.
From a charting standpoint, the Russell 2000 continues to generate topping signals on daily charts which raises the caution flag. Still, so far those topping patterns haven’t triggered a decisive downside pitch, keeping both sides of the equation on uneasy ground. Momentum readings on daily charts are a little overdone with the market recently at the highest closing levels of the year, so a profit-taking breather would not be a surprise. The important thing to watch right now is how the market reacts to resistance around 744 and 750, and support along 735 and 731. A decisive push through either side of that spectrum could spark a more dynamic move.
The U.S. dollar traded in firm fashion Monday, turning back off a test of the 20-day moving average versus the euro, and gaining about 0.4%. The greenback also rose against the yen, tacking on about 0.2%. In general, a rise in the dollar is seen as a potential negative for crude oil and a supportive element for stocks — tied both to crude and to investment flows.
Soft earnings from Lowe’s Companies (NYSE:LOW) appeared to have a chilling impact on the market Monday. Among broad market sectors, the worst performers were homebuilders, home furnishing retail and home entertainment software. In addition, education services and fertilizer shares were out of favor with the bulls. On the upside, internet retail, real estate management and aluminum stocks were solid performers.
Individual small caps of note Monday included Pacific Ethanol Inc. (Nasdaq:PEIX), which gapped higher on unusually heavy volume and soared over 47% as quarterly results topped the forecast. China Precision Steel (Nasdaq:CPSL) climbed nearly 31% on brisk turnover and continues to bask in the glow of last week’s solid earnings, jumping from a low of $3.75 a share five sessions ago to today’s peak of $8.48. Quest Resource Corp. (Nasdaq:QRCP), rallied over 18% on news that the company had axed a merger agreement with Pinnacle Gas Resources Inc.
On the downside, TEL Offshore Trust (Nasdaq:TELOZ) tumbled 14% without fresh news. China Sunergy Co. (Nasdaq:CSUN) slumped about 10%, retracing some of the big gains that were notched last week during earnings news. Oriental Financial Group (NYSE:OFG) was down over 10% to the lowest level since February without any apparent news to power the breakdown. US Airways (NYSE:LCC) was off over 7%, also without news.
