Russell surges to highest daily close since early February
Small-cap stocks shot higher Thursday, lifted by a strong performance for the U.S. dollar, sinking energy prices and renewed enthusiasm for technology and retail shares. At the close, the Russell 2000 (NYSE:IWM) rose 13.57, or 1.89%, to 729.75, the highest daily close since Feb. 3, the second-highest close since Jan. 3, and the fourth-highest close of the year.
The greenback climbed to the highest point against the euro since March 25, and was flirting with the highest daily close versus the yen since late February. A recovery in the dollar would suggest that the U.S. economy may have endured the worst of the slowdown, and would also increase purchasing power of foreign goods. There is also some thought that a resurgence in the dollar could trigger a massive unwinding of short dollar/long energy plays that could ignite a wave of buyers back into equities.
Clearly, the energy market was a source of enthusiasm for stock market bulls Thursday, as crude oil prices slumped to 112.55, down nearly 6% from the peak seen earlier this week as rising inventory and a strong dollar take a toll on crude values. Within the energy sector, investors were chilly to earnings from group leader Exxon Mobil Corp. (NYSE:XON), whose shares slipped about 3.4%.
Within broad market sectors, pretty much anything tied to energy or commodities was soft; with gas, oil and gold shares all down. Big losses were also seen in metals and mining stocks, which were off almost 5%. On the plus side, education services were up about 7%, consumer finance shares were up about 6% and specialty stores up about 6%. The S&P Retail Index (CVE:RLX) climbed about 3.3%.
Tech stocks also had a return to favor today, with big name firms like Apple Inc. (Nasdaq:AAPL), International Business Machines (NYSE:IBM), Intel Corp. (Nasdaq:INTC) and Research in Motion Ltd. (Nasdaq:RIMM) all generating solid gains on the day.
Among individual small-cap issues, Volcom Inc. (Nasdaq:VLCM) ranked as one of the top percentage gainers on the session, rising about 26% on a gap higher move on heavy volume as investors embraced quarterly results. PC Connection Inc. (Nasdaq:PCCC) climbed about 28% on an earnings boost. Although not a huge percentage move, shares of Targanta Therapeutics Corp. (Nasdaq:TARG) rose almost 3% on unusually high volume without any fresh news. On the downside, Elizabeth Arden (Nasdaq:RDEN) tumbled over 25%, gapping lower on heavy volume after reporting a surprise loss for the quarter, and Shutterfly Inc. (Nasdaq:SFLY) was down about 14% on active turnover from sloppy earnings. Commonwealth Bankshares (Nasdaq:CWBS) was off about 3.6% on brisk volume without news.
Of course, all the good vibes from today’s advance will now be shuffled into the background waiting on Friday morning’s monthly employment report. Non-farm payrolls are expected to dip by 78,000, with the unemployment rate rising to a new cyclical high of 5.2%. The market has had a strange way of fading the trend from employment moves in recent months, but with prices nearing yearly closing highs it adds pressure for the jobs news to be decent. The market did show some resilience to less-than-stellar economic news Thursday, as the Weekly Claims report came in above forecast, but was offset by a decent showing in the ISM Manufacturing Survey, which was slightly above the market’s expectation. It should be noted that basically none of the economic numbers look good at this stage. Even though traders saw a silver lining in the headline ISM Manufacturing Survey because it was above the forecast, it still suggested that manufacturing activity was in a recession — even if the overall economy is not. The bulls are simply banking on a hope that the economy is ready to bottom out and begin the march toward improvement.
One positive development is that Thursday’s rally in the Russell quickly erased the bearish pattern from yesterday’s post-FOMC slide. If the market can sustain upside momentum after jobs on Friday, then it will increase equity heat on losing shorts to pay their way of losing trades and will set the stage for the next leg up in the rally off March lows. The strong finish Thursday helped post the most convincing rise above key resistance just shy of 725 — a point that marks a major technical weigh station on the road to recovery. Short-term traders will now watch 731 as resistance, as that point marks a double top on daily and weekly charts from early February. Above that point, there is a resistance zone from 735 to 743 that is the next testing ground. If the market falters after jobs, then initial support is at 720.50, then at 714 and 708.
