Uneven rise on crude slide amid mixed earnings news
Small-cap stocks spent most of the day in the green, but closed well off the intraday highs as a slide in crude oil prices was countered by mixed returns on the earnings front. The Russell 2000 (NYSE:IWM) edged up 2.36, or 0.33%, to 719.19, the highest close in four weeks.
The market also may have been ripe for a little bit of a consolidation “breather” session today as the Russell has rallied 12% off the July 15 lows in just seven sessions. Short-term intraday momentum readings were overdone coming into today’s action, which could easily have sparked some long profit-taking from traders who caught the recent bounce. Also, it’s a little easier to find the silver lining in the news when the market is oversold.
In recent days, the dominant upside theme has been the financial story. Big-name banks have had a string of upside earnings surprises, and that momentum easily spilled over into the small- and mid-cap financial names as well. While GSEs were a strong performer today, the overall financial landscape was a little more cautious, with the Financial Select Sector SPDR hovering near breakeven levels late in the session.
Large-cap stocks that dominated the picture today included McDonald’s (NYSE:MCD), Pfizer (NYSE:PFE), Boeing (NYSE:BA), AT&T (NYSE:T) and Washington Mutual (NYSE:WM). Those stocks reflected the mixed signals investors had to navigate when trying to read through earnings results to get a feel for consumer spending, economic turmoil and macro trends. Washington Mutual was clobbered 19%, which took some of the wind out of the financial sails, but was countered by optimism on the GSE horizon, as hope for a quick passage of the Treasury rescue plan lifted both Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE). As for the aforementioned names, MCD was down about 0.9% after reporting earnings, PFE was up over 3%, BA was down nearly 4% and T was up about 4%.
Looking at broad market sectors, computer storage, managed health-care, insurance, specialized finance, paper, household appliances, homebuilders and residential REITS were all in positive territory. On the downside, oil and gas drillers, fertilizer, oil production, oil refining, oil equipment, gold and aluminum shares were out of favor — at least for today.
Speaking of oil, prices on crude tumbled sharply today, with benchmark levels down some $4 dollars a barrel to six-week lows near $124.50. Crude prices have been in downward spiral of late, sinking 15% off the record high above $147 from July 11. The weekly stocks report showed a large build in crude supplies, there are worries about demand from the U.S. and China, and Hurricane Dolly veered away from key production areas in the Gulf of Mexico. In other commodity news, soybeans and wheat were down sharply today and the iPath GSCI Total Return commodity fund was down 2.6%.
For the second consecutive session, airlines were a clear beneficiary of the slide in crude oil prices, with the AMEX Airline Index jumping another 9% today after a stunning 22% rally Tuesday. Several airline carriers now fit into the small- and mid-cap ranking slot, including US Airways (NYSE:LCC), which surged 18% today and has now gone up 250% from the lows last week.
The slide in crude oil prices was complemented by a surge in the U.S. dollar, which jumped nearly 100 basis points against the euro, gaining 0.6% and about 0.5% versus the yen, which makes commodity goods priced in U.S. dollars more expensive (and therefore, less desirable) to customers.
Looking at the chart picture from today’s action, the formation on candlesticks is a little wobbly. If the market falters early Thursday, then this could look like a little top for the move. The market stalled today right on cue near chart resistance at 726, and that remains the point to watch heading forward. As for support Thursday, the initial support is near 707.50, but the key level to watch on any deeper pullback is down around 689.
