Russell shakes off morning blues to close in the green
Small-cap stocks posted a solid gain Tuesday, erasing morning losses to climb to the highest daily close since early February. By the close, the Russell 2000 (NYSE:IWM) was up 5.44, or 0.75%, at 729.79.
The impressive recovery move off morning lows generated a bullish outside reversal on daily charts, which helps offset some of the topping pattern formed by Friday’s lower close after making new move highs. It should be noted that downside action on Monday was forged on extremely light volume, which took some of the edge off the lower price action coming into today’s session.
Looking ahead to Wednesday’s session, the market still needs to establish the ability to hold above the 731 zone, which formed a double top back in early February. Clearly, sellers emerged in that area late Tuesday, pulling the index back off the highs. Above that 731 point, resistance is at 735 and 743. If the market starts to struggle, then support is at 726, 720.50 and 715.
Much of the bearish morning tone was linked to overnight losses in Fannie Mae (NYSE:FNM), which tumbled 8% after investors were cool to earnings results and a downgrade in the company’s credit rating. However, Fannie Mae reversed course after a conference call with company officials, and ended up climbing more than 8%. Without that bearish impetus to stir jitters about the mortgage market, credit crunch and banking worries, the bears quickly lost favor. By late mid-morning, most of the major stock index products had pushed into the green. In addition, there was some hope from investors that the recently ditched Microsoft (Nasdaq:MSFT) takeover of Yahoo (Nasdaq:YHOO) could get back on track.
The rise in equities was accomplished despite soaring crude oil prices, which jumped past $122 dollars a barrel. Although higher energy prices will provide support to some energy-tied stocks, the overall impact of rising energy prices tends to be more of a consumer and economic negative, so the ability to close at a three-month peak in the face of record crude oil prices was truly a solid performance.
The jump in crude oil prices wasn’t the only commodity news of note today. Corn prices set yet another record high, and the Commodity Research Bureau Index (which tracks a wide range of physical markets) was up over 1% today. The market will still have to navigate the quandary of a sluggish economy, slumping home values and rising goods prices, it’s just a matter of whether or not money flow can offset those concerns and whether or not the worst of the news has already been priced into the market.
Within individual small-cap shares, Innophos Holdings Inc. (Nasdaq:IPHS) gapped higher on brisk volume, climbing about 20% on solid earnings. Beasley Broadcast Group (Nasdaq:BBGI) was up nearly 17%, also benefiting from quarterly results. Hudson Highland Group (Nasdaq:HHGP) climbed over 16% as investors embraced their earnings news as well. Sun Hydraulics Corp. (Nasdaq:SNHY) climbed over 15% on unusually heavy volume as earnings were up 31% and sales were up 20% for the quarter.
On the downside, The Ensign Group (Nasdaq:ENSG) was down about 6% on heavy volume without any fresh news. Obagi Medical Products (Nasdaq:OMPI) tumbled over 20% on a gap lower move after soft earnings.
Some of the best-performing sectors Tuesday among broad S&P groups were tire and rubber shares, thrift and mortgage financial firms and wireless telecommunications. On the downside, health-care facilities, construction materials and specialty stores struggled to get on board with the overall market comeback.
Looking ahead to Wednesday’s session, the market will get a minor economic report before the opening in the form of Productivity data at 8:30 a.m. ET. The afternoon Consumer Credit release at 3:00 p.m. ET is unlikely to stir volatility, which means the market should be able to focus on earnings news, chart patterns and money flow for trading direction.
