Small caps smash support, sink to two-month lows
Small-cap stocks broke down Tuesday, smashing key chart support amid fretting about dour consumer confidence, rising oil prices and jagged nerves ahead of Wednesday’s FOMC announcement. The Russell 2000 (NYSE:IWM) closed down 11.89, or 1.65%, at 707.92, the lowest daily close since April 22.
The market was already wobbly coming into today’s action, and when consumer confidence plunged to a fresh 16-year low, the bulls pulled their chips off the table en masse. The headline reading on consumer confidence was at 50.4%, down from 58.1% last month and well off the median forecast of 56.4%. The plunge in consumer confidence puts consumer spending at risk, which puts any economic recovery at risk as well. After the close, ABC News released its own Consumer Comfort index (a weekly data series), which edged up for the week, but the quarterly figure was on track for the worst showing since 1992.
The confidence number completely overshadowed the Case-Shiller report, which came out early today and which showed a numbing drop of 15.3% for home prices over the same period last year. However, the number was not as bad as forecast, and there were some pundits who argued that this could be a sign that the housing market collapse is near the bottom. It’s an argument that lost power as the market lurched into an afternoon selling fury.
Although the confidence report will gather the bulk of attention for today’s slide, it should be noted that the collapse in small caps pushed prices below key chart support at 717.50, which opens the door for a new lower range. The major downside target for this lower range is at 690. If the market stabilizes Wednesday and has any kind of upside surprise off FOMC, then the zone from 717.50 up to 720.50 stands as the first test of any rally.
It’s also worth noting that volume today was reasonably light for a big downside press, perhaps thinned out by investors unwilling to take a stand ahead of Wednesday’s FOMC announcement, which should provide a clearer picture of policy maker’s stance on inflation and interest rates.
Inflation from an energy standpoint seems to have no letdown of late. Crude oil prices edged about 0.2% higher Tuesday, boosted by geopolitical tension in the Middle East and by supply concerns out of Africa. At times, the stock market appeared to trade tick-for-tick with crude oil, but when the energy market showed no sign of making a meaningful turn lower, the sell-off in stocks resumed unabated.
Broad market sectors on the decline today included fertilizer companies, electrical components, chemicals, industrial gasses and airfreight couriers. The latter was tied to a big slide in United Parcel Service (NYSE:UPS), which tumbled 6% while issuing a profit warning tied to the sluggish economic environment and soaring fuel costs.
Meanwhile, broad market sectors on the rise included homebuilders, food retail stocks, banks and many other financial groups. The biggest updraft was on photo products, as Eastman Kodak (NYSE:EK) rallied 13% after announcing a $1 billion buyback program.
Small caps of note were highlighted by comScore Inc. (Nasdaq:SCOR), which shed 22%, gapping lower and extending the move on unusually brisk volume, wiping out several weeks of impressive gains in quick order. DaiEi Inc. (Nasdaq:DAIEY) gapped lower as well, losing nearly 18% without any apparent fresh news to fuel the decline. Capital Trust (NYSE:CT) tumbled almost 10%, sinking to fresh 52-week lows in the process. Bucking the overall downdraft, Royale Energy (Nasdaq:ROYL) gapped higher and gained almost 17% after announcing plans to drill in Utah.
