Small caps sinking toward trendline test as earnings fail to inspire
Small-cap stocks remained solidly lower into midday trading, pressured by concerns that the latest batch of quarterly earnings were painting a difficult canvass moving toward 2009. Even the bullish earnings surprises seem tainted by worries that a prolonged recession will pull down corporate profitability for some time. At 12:47 p.m. ET, the Russell 2000 (NYSE:IWM) was down 12.71, or 2.39%, at 518.10.
At the lows today, the Russell was testing minor trendline support drawn off the recent lows. That line also forms the bottom edge of a pennant pattern, and a breakdown through today’s lows would suggest further downside probing toward that major low. Below today’s low at 514.42, there is very little chart support until we get close to the “figure” point at 500, which stands as another important test for any bulls who want to find value at the depressed levels.
As for the latest batch of earnings today, there were red flags from nearly every sector, with pharmaceutical firm Merck & Co. (NYSE:MRK) projecting a very cautious outlook. ConocoPhillips (NYSE:COP) was down about 6%, warning that exploration and output would slide and airplane maker The Boeing Co. (NYSE:BA) was down about 6.5% as a strike hurt profits.
The biggest declining sectors this morning came from coal, motorcycle manufacturers, metal and mining stocks, oil and gas drillers, aluminum, gold stocks and casinos. For the second day in a row, commodities were getting nailed as the prospect of global slowing takes a toll on physical markets and the companies that deal in those products. The Commodity Research Bureau Index of 19 physical markets was down 3.2% into mid-session, sinking to fresh move lows and the lowest point since September 2004. The dramatic collapse in commodities in the last four months has been astounding as the CRB has tumbled from record highs (remember when crude oil was nearing $150 a barrel?) and is now at four-year lows.
As for crude oil, that market is down again today, sinking to 16-month lows as inventories rise and demand slumps.
Looking at individual small caps today, Nortel Inversora SA (NYSE:NTL) was off 34%, sinking to new 52-week lows in a continuation of the slide we saw Tuesday from ADRs, especially those tied to South American economies, which are dependent on commodity exports. NTL’s main business is owning stock in Telecom Argentina SA (NYSE:TEO), whose stock was hammered Tuesday and was down another 32% today.
