Small caps slip as oil recovers
Small-cap stocks edged lower in relatively calm trading, as a recovery bounce in crude oil on the stock market opening took some of the air out of the morning bullish side of things. At 10:01 a.m. ET, the Russell 2000 (NYSE:IWM) was down 4.15, or 0.55%, at 749.22.
Crude oil prices rallied about $1 dollar a barrel back above $115, supported by concerns that the conflict in Georgia could clip supplies that move through the Caspian region. Also, the U.S. dollar was off slightly this morning, which provided some support to oversold commodity markets — including energy. Grains prices were called higher this morning, and several physical markets were in positive territory early today. The Hershey Co. (NYSE:HSY) was down some 8% early today after saying they would raise candy prices 10% to combat higher raw commodities input costs.
Asian equity markets were primarily lower overnight, which was also something of a concern for U.S. stock market traders. China equities continue to slump, apparently not getting any immediate upside bump from the Olympics. China stocks were off 5.4% overnight, while Hong Kong was down 1%, Taiwan down 2.7% and Singapore down 0.7%. One rosy spot was the Pakistan market, which rallied 4.4% on news that President Musharraf had resigned.
Most traders were looking for thin volume this week amid the holiday season in Europe and in the United States, so it might take some kind of surprise to jolt equities out of a sleepy mood.
Broad market sectors on the rise this morning were dominated by commodity themes, with coal, metals, steel, gold, oil exploration, industrial gases, integrated oil and oil drillers all on the upside. On the downside, thrifts and mortgage finance firms were taking a beating following an article in Barron’s over the weekend saying that the Treasury Department would recapitalize the firms using taxpayer funds, which could devalue current investor holdings. Other sectors struggling early included food retail, employment services, regional banks and wireless telecoms.
Individual small caps on the move included Targanta Therapeutics Corp. (Nasdaq:TARG), which tumbled 11% and Saia Inc. (Nasdaq:SAIA), which was off 9% after making new move highs on Friday. SAIA has been on a strong upside push since early June, nearly doubling in value. On the upside, Dyax Corp. (Nasdaq:DYAX) jumped 19% on news that the firm’s hereditary angioedema drug met the goal of a late-stage clinical trial. Micromet Inc. (Nasdaq:MITI) rallied nearly 14%, making new highs for the move.
It will be interesting to see if the market pays more attention to economic data during this week’s trading. Although there are no noteworthy reports today, Tuesday morning brings releases on inflation and housing. Last week, the market shrugged a batch of worrisome economic reports to chug higher.
In a weekend research report, analysts at Goldman Sachs said the term “stagflation” described the feel of last week’s economic reports as inflation was above forecast, consumer sentiment remained dour, credit conditions tightened and domestic economic activity stalled.
As the day progresses, chart support comes in at 742, then at 734. If the market can resume last week’s rally mode, then resistance is at 758, then at 764. There are some troubling topping signals on daily charts from Friday’s action that suggest short-term trading may need a corrective pullback amid mildly overbought momentum readings.
