Small caps extend surge as commodities climb
Small-cap stocks extended the morning rally into midday trading, boosted by surging commodity stocks, which more than offset sloppy action among financial shares. At 12:30 p.m. ET, the Russell 2000 (NYSE:IWM) was up 10.47, or 2.25%, at 476.18, nearly double the percentage gains registered in the Dow. Small caps also outperformed in Europe today, with the FTSE Small Cap Index up 2%, while blue chip stocks were down 0.3%.
The top-performing sectors among S&P groups today were dominated by commodity companies. The top-performing group was coal, with gold stocks, oil and gas drillers, aluminum, metal and mining shares all posting impressive gains.
Within the commodities arena, crude oil prices jumped nearly $2.50 a barrel into mid-session despite a rise on weekly inventory data. The bounce in crude oil prices helped lift energy stocks, with the Energy Select Sector SPDR Fund up 4.8%.
But the story in commodities wasn’t relegated just to energy. The Commodity Research Bureau Index of 19 physical markets climbed 2.6% after washing out to multi-year lows late last week. Metals markets were in rally mode today, fueled not only by the push for commodities, but also be a big jump in mining stocks overnight on news that Rio Tinto would slash jobs, reduce capital spending and sale assets to raise cash. Rio Tinto shares on the NYSE were up 23% at midday. Copper mounted a bounce today, climbing nearly 4% in U.S. trading, which is important because copper has been lagging other moves in metals lately, which does not provide confirmation of an improving economic outlook.
On the automaker front, the White House said that the Bush administration and lawmakers had reached a “conceptual agreement” on the rescue plan for U.S. carmakers, which would include a “Car Czar” to oversee restructuring plans by General Motors Corp. (NYSE:GM) and Ford Motor Co. (NYSE:F). GM was up almost 3%, while Ford was up about 1.2%. There are still concerns that Republicans could mount opposition to the bailout plan. The US House of Representatives met at 12:45 pm ET to hold an emergency meeting on the bill.
Despite the impressive rally underway for commodity stocks, the Financial Select Sector SPDR Fund was down slightly at midday, and bank stocks remain a mild drag on the market as concerns about the credit crisis remain in play.
Individual small caps on the rise today included American Land Lease Inc. (NYSE:ANL) as the real estate investment trust agreed to a buyout for $14.20 a share, a 264% premium to Tuesday’s closing price. ANL shares were up 221% on the news. Atlas Pipeline Holdings LP (NYSE:AHD) jumped 43% and appears set to close above the 20-day moving average for the first time since late September. Thermadyne Holdings Corp. (Nasdaq:THMD) surged 26% as the metal cutting and welding product maker benefited from the commodity rally. Brinker International Inc. (NYSE:EAT) rose 18% as the operator of Chili’s, Macaroni Grill and other restaurants continues to climb off the November lows. On the downside, the top 10 percentage losers were all linked to financial services and banking. Outside of financials, NOVA Chemicals Corp. (NYSE:NCX) was off 12%, setting fresh 52-week lows a day after the Canadian plastics manufacturer announced that the CEO would retire next spring.
Looking at the chart picture, the Russell is back approaching a test of critical resistance along the 491 zone. That area represents the reversal peak from Tuesday’s failure and also the highs from mid-November. Why are we watching that area so closely? Because since the bear market collapse kicked into gear in mid-September the market has had a nasty habit of forming new bear market lows when bounces fall short of previous highs. This creates a bearish behavior cycle of lower lows and lower highs. Decisive action above 491 would snap that behavior cycle and add credence to the bottoming argument. Above 491, there is resistance around 501. Meanwhile, if the market wobbles again today off this zone, then 473 becomes an important test (one that didn’t hold up yesterday afternoon).
