Russell soars to highest daily close since Jan. 3
Small-cap stocks took flight Monday, with the Russell 2000 (NYSE:IWM) climbing to the highest daily close since Jan. 3, as investors shifted out of a range of other assets to pour money into equities. In addition, the rally likely triggered a wave of buy-stop orders from shorts that were unwilling to take a stand as the market once again approached fresh move highs. The Russell finished out Monday’s action up 13.18, or 1.83%, at 733.23.
The market appeared to embrace overnight gains in overseas equities, especially a rise in the largest European bank, HSBC, which was seen as a sign that the credit crunch worries are subsiding. On the U.S. side of things, Bank of America (NYSE:BAC) was up over 2.2%, but Citigroup (NYSE:C) shares struggled to hold ground. In addition, there was a renewed gush of merger giddiness on reports that Electronic Data Systems (NYSE:EDS) was a takeover target for Hewlett-Packard Co. (NYSE:HPQ). EDS was up nearly 28% before an afternoon trading halt, while HPQ was off about 5%.
Small-cap issues clearly paced the way on Monday’s rally, a move that was foreshadowed Friday when small caps eked out a minor gain even though large-cap indices lagged in the red. In recent years, small caps have tended to lead the way on rally moves, especially during the bull market run from 2002 to 2007.
The dollar jumped against the yen, but lost ground versus the euro. In all, the currency market action Monday appeared to be a net positive for equities, with some traders explaining away the lost ground against euro as a result of carry trades into high yielding FX markets.
Stock market investors also appeared to breathe a sigh of relief that crude oil prices were tame to start the week, with crude oil down about $2 a barrel from a fresh morning record peak. Given a large mass of economic data still to come this week, it will be interesting to see if equities can look past the crimped consumer purchasing power stoked by record-high energy prices.
Speaking of the data smorgasbord, the first big number of the week comes out Tuesday morning in the form of retail sales. In addition, Federal Reserve Chairman Ben Bernanke will speak on liquidity measures before the opening. With more than a dozen appearances this week by Fed officials, the market is eager to get a feel for how policy makers see the economy. The first hint of that reading was seen this morning when Chicago Federal Reserve President Charles Evans said that the U.S. economy was struggling but should pick up momentum in the second half of the year.
Among broad market sectors, gains were distributed among an impressive array of sectors, including financial, retail, electrical and data processing shares. In fact, although much of the broad market focus was on financial stocks, the biggest plus on the Dow came from Alcoa Inc. (NYSE:AA), which was up almost 6%. On the downside, oil and gas drillers took a hit, as did gold shares.
Within individual small caps, Radyne Corp. (Nasdaq:RADN) shot nearly 44% higher on brisk volume as Comtech Telecommunications (Nasdaq:CMTL) announced plans to acquire Radyne for $11.50 a share. Acme Packet Inc. (Nasdaq:APKT) jumped over 16% without apparent fresh news to power the move, and Spectrum Control Inc. (Nasdaq:SPEC) was up 15%, also without news. On the downside, Gencor Industries Inc. (Nasdaq:GENC) tumbled 38%, gapping lower on earnings and Cumulus Media Inc. (Nasdaq:CMLS) was off 24% on unusually heavy volume when a buyout deal appeared to collapse.
From a charting standpoint, the Russell 2000 pushed through important resistance in the 731 zone. The market has tested that level a few times since a double top was formed there back in early February, but will still have to see decisive action above that point Tuesday to validate today’s resistance breach. Above 731, resistance is at 735, then at 743. If the market starts to wobble Tuesday, support is at 726, then at 720.50.
