Small caps rally on crude dip, Buffett, Bernanke comments
Small-cap stocks pushed higher on the open, buoyed by a slide in crude oil prices, a bounce in the U.S. dollar, and soothing comments from billionaire investor Warren Buffett. At 10:04 a.m. ET, the Russell 2000 (NYSE:IWM) was up 8.35, or 1.15%, at 733.60, holding on to gains after the first flash of headlines from Federal Reserve Chairman Ben Bernanke.
Bernanke, speaking on financial stability, said that recent declines in commodity prices and the stability of the dollar were encouraging, and that although the inflation outlook is uncertain, that the Federal Reserve will act as needed to maintain price stability.
Buffett, nicknamed “The Oracle of Omaha” said on CNBC ahead of the opening this morning that stocks were “more attractive” today than they were a year ago and that he does not have any current bearish dollar investments. Buffett’s comments provided a lift to stock index futures and to the dollar ahead of the regular market opening.
Crude oil prices were in retreat mode this morning, unable to extend the dramatic rally from Thursday’s action. Crude oil prices were down nearly $2 dollars a barrel, hovering just below $119, weighed down by OPEC output increases. However, the market is still cautious about tensions between the United States and Russia and closely watching storm patterns trekking through the Gulf of Mexico.
The U.S. dollar was righting the ship today after a sudden freefall Thursday, which also pressured crude oil prices and a host of other commodity markets. The greenback was up some 1.2% against the yen and the pound sterling, and was up about 0.6% versus the euro. At this stage of the economic cycle a firm dollar is seen as a sign of optimism about the U.S. economy relative to other world economies, and can also attract investment flow into U.S. assets.
Stocks in the news this morning included Lehman Brothers Holdings Inc. (NYSE:LEH), which jumped 12% on talk that a large Korean investor was considering a buy-out of the firm. It’s been a rugged couple of weeks for financial stocks in general, but the LEH news and comments from Buffett that he has increased a stake in one of his financial firm investments. The Financial Select Sector SPDR Fund was up 2.5% shortly after the open.
Several retail apparel firms were making eye-catching moves this morning, including small-cap stock Pacific Sunwear of California (Nasdaq:PSUN), which collapsed 29% following disappointing earnings results. Foot Locker Inc. (NYSE:FL) was down 1.1% even after topping the Street’s estimate and Gap Inc. (NYSE:GPS) was up 4% after squeaking past the earnings forecast.
Broad market sectors on the rise this morning were highlighted by diverse financial services firms, automobile manufacturers, diversified banks, regional banks, investment banking and brokerage firms, department stores, specialized finance and apparel retail stocks. Commodity themes dominated the losers early on, with coal, oil exploration, aluminum, gold, steel, metals and mining, oil and gas drillers and integrated oil stocks taking a hit.
Individual small caps of note included China Sunergy Co. Ltd. (Nasdaq:CSUN), which was up 11% on solid earnings news. Blue Coat Systems Inc. (Nasdaq:BCSI), rallied 14%, also tied to earnings. Airlines were getting a lift this morning from the pullback in crude oil, with UAL Corp. (Nasdaq:UAUA) up 8% and US Airways Group Inc. (NYSE:LCC) up 9%. On the downside, Perry Ellis International Inc. (Nasdaq:PERY), gapped lower and tumbled some 20% as the apparel maker posted a quarterly loss.
Looking at the chart picture, resistance comes in today at 734, 737 and 742. Meanwhile, support should be seen at 726, 720.50, then a “vacuum” down to 711.50. There are some top-heavy signs visible on weekly charts following last week’s bearish reversal rejection of fresh move highs, but if the market can hold above 726 throughout today’s session it will help stabilize the short-term picture.
