Small caps edge lower as crude oil sets record high
Small-cap stocks slumped on the opening, pulled down by a sudden surge in crude oil prices, which hit a fresh record high ahead of the stock market opening. At 10:00 a.m. ET, the Russell 2000 (NYSE:IWM) was off 2.30, or 0.31%, at 731.32.
Crude oil prices were undergoing a sleepy overnight rally toward the $136 zone, then abruptly shot up above $139 dollars a barrel, clearly unfazed by talk from Saudi Arabia that they would increase production. The dramatic rise in crude oil was accompanied by a slide in the U.S. dollar against the euro, which was off about 0.8%. Crude oil was not the only commodity market on a roll this morning, as silver rose some 5%, gold prices jumped 2% and grains markets were called sharply higher.
Earlier this morning, the NY Manufacturing Survey came in below expectations, which put the market on the defensive before the crude oil price spike delivered a knockout punch for stocks. The manufacturing report came out at minus 8.68 for June, well below the median forecast for a dip of 2, and eroding from last month’s figure of minus 3.23.
The financial sector remains in the spotlight this week, with Lehman Bros. (NYSE:LEH) announcing quarterly results ahead of the opening today. Earnings were in line with expectations, but the stock will likely take direction based on forward guidance. Shortly after the open, LEH shares were up 0.4%. In other large-cap financial news, American International Group (NYSE:AIG) was down 2%, after announcing that the CEO will be replaced. Also on the large-cap front, General Electric (NYSE:GE) shares were off 1.8% after being downgraded overnight by analysts at JP Morgan.
Federal Reserve Chairman Ben Bernanke did not comment on the outlook for the U.S. economy at a speech today on health-care reform. Over the weekend, Washington Post columnist Robert Novak said that Bernanke does not intend to raise rates and that the Fed leader has a bigger disagreement with European Central Bank officials than is apparent in his public statements. Later today, Richmond Fed President Jeffrey Lacker will talk about the economic outlook at 1 p.m. ET.
Broad market sectors on the decline early today include paper and packaging stocks, education services, hotels and airlines. On the upside, gold, metals and mining, oil exploration and production and coal stocks were attracting buyers.
Individual small caps on the move were highlighted by ACADIA Pharmaceuticals (Nasdaq:ACAD), which tumbled 48%, gapping lower on heavy volume on news that an experimental schizophrenia drug failed a trial. Orion Energy Systems Inc. (Nasdaq:OESX) also gapped lower, tumbling about 8% to the lowest point since mid-April. Nymagic Inc. (NYSE:NYM) was down nearly 5%, sinking to the lowest level since January.
On the upside, Motorcar Parts of America Inc. (Nasdaq:MPAA) climbed 26% on solid earnings results. Greenfield Online Inc. (Nasdaq:SRVY) rose some 15% on news that the firm will be acquired by Quadrangle Group for $15.50 a share.
From a charting standpoint, look for resistance today in the Russell 2000 at 735, 741 and 745. Meanwhile, support is pegged at 726, then key support is at 720.50. The overall chart structure remains top-heavy despite Friday’s impressive recovery rally, and it will be interesting to see how the market fares along a test of the 20-day moving average, which comes in today at 736.16.
