Russell up on weak crude, firm economic data
Small-cap stocks turned higher shortly after the opening, underpinned by a decline in crude oil prices, which helped offset some overnight concerns about the closure of a large hedge fund. At 10:02 a.m. ET, the Russell 2000 (NYSE:IWM) was up 3.66, or 0.50%, at 742.16.
The factory orders report came in at 1.3%, which was above the forecast of 1%. The data was for the July time frame, so it’s a little dated. Stocks edged higher after the report, but this particular report tends to have a muted impact on trading direction for stocks or currencies.
Earlier this morning, the weekly MBA Mortgage Applications Index climbed 7.5%, the refinance index was up 2.1% and the purchase index rose 10.5%, which hints at a modest upside pop in mortgage activity as the fixed rate dipped about 0.05% to 6.39%.
In other economic activity news, MasterCard Advisors said that shoppers reduced spending on clothes and shoes over what should have been a big back-to-school season in August, instead spending money on food and gasoline.
Ospraie Management LLC, announced plans to close its biggest hedge fund, with holdings estimated at some $2.8 billion dollars. The fund was thought to have significant exposure to equities with commodity themes and has been losing money at an alarming clip in recent months. Ospraie will still hold other hedge funds with large investments, but the fund in question has ties to Lehman Brothers Holdings Inc. (NYSE:LEH) as the investment bank has an estimated 20% stake in the fund. There are concerns that this news won’t help Lehman’s effort to raise capital or find a buyer and overshadowed news reports overseas that HSBC, another Chinese bank and several hedge funds were interested in taking a stake in the beleaguered firm. LEH shares were off just 0.3% shortly after the open.
In one sense, the fact that the Ospraie news is now out could actually soothe the market, because it helps explain the massive slide off the highs Tuesday and the inability for stocks to rally on seemingly good news – lower commodities and a strong dollar. Those same elements were in play this morning, with crude oil down about $1.50 a barrel toward $108 and the U.S. dollar climbing to fresh seven-month highs against the euro.
When the stock market started to falter Tuesday, it was clear to see money moving into Treasury products, which is a safe-haven investment of choice. It now seems quite likely that insiders were becoming aware of the hedge fund closure, which helped power the move. Early today, Treasury markets were tame, so the money flow issue away from stocks appears to have ebbed.
Some large-cap stocks in the news this morning included Ambac Financial Group Inc. (NYSE:ABK), which jumped 10% on news that regulators have approved their move into a new muni-bond insurance product. Also, The Coca Cola Co. (NYSE:KO) was down 0.7% after news overnight that the firm would purchase Chinese juice maker Huiyan for $2.5 billion, which would be the largest takeover yet of a Chinese company. Staples Inc. (Nasdaq:SPLS) was up 0.5% after earnings were in line with the forecast and H and R Block Inc. (NYSE:HRB) was flat awaiting quarterly results.
Broad market sectors on the rise early today included health-care facilities, paper products, construction materials, steel, airlines, home improvement retail, automotive retail and automobile manufacturers. On the downside, semiconductors, semiconductor equipment, drug retailers, regional banks and casinos were struggling.
Individual small-caps making a move this morning were highlighted by Medivation Inc. (Nasdaq:MDVN), which jumped 13% on news that Pfizer Inc. (NYSE:PFE) was acquiring the rights to an Alzheimer’s drug from MDVN for $725 million. Also on the pharma front, Alexza Pharmaceuticals Inc. (Nasdaq:ALXA), gapped higher and gained some 7% on news that the firm’s schizophrenia drug met the goal of a clinical trial. On the flipside of things, Green Mountain Coffee Roasters Inc. (Nasdaq:GMCR) was down nearly 10% without any apparent fresh news percolating. Website Pros Inc. (Nasdaq:WWWW) was down 7%, tumbling to fresh 52-week lows. The stock has basically been in a relentless freefall since peaking last December above $11, and is now about half that value.
Looking at the chart picture, there is a double bottom on intraday studies from Tuesday’s action near the lows around 731.50, which stands as important support this morning. Below that point, support is at 726 and 720.50. If the market can right the ship today, then resistance comes in at 742 and 748.
