Small caps higher after econ reports
Small-cap stocks pulled higher this morning and remained in positive ground after a mixed batch of economic reports buffeted the market. A firm tone in energy stocks, momentum from overseas gains and optimism about upcoming stimulus plans provided a lift. At 10:04 a.m. ET, the Russell 2000 (NYSE:IWM) was up 8.51, or 1.68% at 513.54.
The ISM Non-Manufacturing Survey came in at 40.6, which was better than the forecast of 37.0 and a nice bounce off record lows from the previous reading. Still, this number is low historically and consistent with recession. Although the ISM reading was positive relative to expectations, the same can’t be said for factory orders, which tumbled 4.6%, much worse than the projection for a decline of 2.5%. Completing the early data trifecta, pending home sales were also sour, sinking 4.0% versus the consensus for a decline of 1.0%. Now that this rush of economic data is out of the way, the market should be free to focus on other factors before this afternoon’s 2:00 p.m. ET release of FOMC minutes.
Crude oil prices pulled back above $50 dollars a barrel for the first time in some five weeks as the Israeli/Palestinian conflict in the Gaza Strip and a gas row between Russia and Ukraine continue to spark a bid for energy markets. The rise in crude oil likely has underpinned energy stocks, which were a big winner Monday and were up again this morning.
The rise in energy markets has taken place despite a sharp bounce in the U.S. dollar, which was up again this morning against the euro. Since many commodity markets are priced in dollar terms, a rising greenback often hurts physical prices. Even though that hasn’t been the case this week for crude oil, it appears to be a factor for gold, which was pulled down Monday and lower again this morning, taking some air out of gold stocks.
Individual small-caps on the move this morning include Indevus Pharmaceuticals Inc. (Nasdaq:IDEV), which gapped higher and soared 72% on news that the firm will be purchased by Endo Pharmaceuticals (Nasdaq:ENDP) for $370 million. This was interesting because just a couple of days ago the CEO for Pfizer Inc. (NYSE:PFE) said that they were open to acquisitions in 2009…if the big firms are looking for growth through M&A, then small-cap firms are likely targets. Aladdin Knowledge Systems Ltd. (Nasdaq:ALDN) rose 33% on rumors that the Israeli information security firm was nearing a deal to be purchased. Atlas Pipeline Holdings Inc. (NYSE:AHD) is back on the big percentage movers list for a second consecutive day amid the energy rally. On the downside, Vasco Data Security International Inc. (Nasdaq:VDSI) gapped lower and shed some 20% as the firm reduced guidance. LSI Industries (Nasdaq:LYTS) also gapped downward and tumbled 13% as the LED and image solutions company lower sales and earnings projections for fiscal 2009.
Looking at the chart picture for small-caps, the market remains in an upward consolidation mode. The recent push through 491 was an important event for the market because it snapped the bearish behavior cycle of lower lows and lower highs. Today’s quick pop through minor intraday resistance along 508.20 now leaves 514.50 as the next resistance point of note. Above there, look for resistance approaching 525. If you’re a long-term trader, then the key test will be closer to 550. On the downside today, support comes in at 496.50, then down at 491.
