Zion Oil and Gas (ZN) Leads Small Cap Gains
Stocks were poised to open lower today and but for a brief few minutes in early trade they generally lived up to the prediction. The Dow shaved 34 points to close at 8,439. The S&P 500 sank 1.5 points to 919, while the Nasdaq closed up 9 points to end the day at 1,838.
Stocks in the Russell 2000 Index, a composite of the 2,000 largest small-cap stocks, bucked the downward trend for the index to close at 513, up 0.78%.
While there was good news about a very modest increase in spending rates, investors seemed most concerned about the boost to the U.S. savings rate to 6.9 percent, up from 5.6 percent in April and significantly up from rates below 1 percent for the period 2005 through 2007. While this could bode well for the longer term economic health of the U.S. economy many analysts see it merely as a side effect to consumer concerns about layoffs, cutbacks, and furloughs.
The increase in the savings rate has come at the expense of consumer spending, which accounts for roughly 70 percent of the U.S. economy. Indeed, many retailers have been battered over the past several quarters as Americans concerned they may receive a pink slip any day shut their wallets to defer spending and switch to lower cost brands for necessities.
Among the stand-outs in retailing are Wal-Mart (NYSE:WMT), Target (NYSE:TGT), and Costco (NYSE:COST). Despite more consumers turning to discount retailers, both WMT and COST have seen year to date share price declines. TGT shares are up nearly 20% for the year.
Despite the modest increase in household spending, retailers are girding for continued earnings pressures as American families prepare for unemployment to reach 10% later this year, up from the current 9.4%.
Leading small-cap gainers today was Zion Oil & Gas (AMEX:ZN) up 76%. Zion runs as a development stage oil and gas exploration firm. Based in Dallas, Texas, the firm holds exploration licenses for onshore development in Israel.
Other small-cap leaders included Cardium Therapeutics (AMEX:CXM) up 48%; Schmitt Industries (Nasdaq:SMIT) up 45%; and Caraco Pharmaceutical Laboratories (AMEX:CPD) up 35%.
Decliners were lead by Design Within Reach (Nasdaq: DWRI), a San Francisco-based furniture store, down 41% after announcing that it expects to delist from the Nasdaq on July 16 with trading ceasing July 6. DWRI has had trouble keeping its share price above $1.00 (a key Nasdaq requirement) for most of 2009 and has indicated that it does not have the working capital to meet the Nasdaq's requirements for staying listed.
Besides DWRI, small-cap price decliners were lead by NewBridge Bancorp (Nasdaq:NBBC) down 37%; Cano Petroleum (AMEX:CFW) down 25%; and Cumulus Media (Nasdaq:CMLS), also down 25%.
Yesterday, the Fed scaled back two of its liquidity-providing programs and announced it would let a third one expire on July 1, 2009.
Each program was designed to provide liquidity to securities dealers and money-market funds that couldn't raise funds in the capital markets. The Fed noted that none of the programs were used anywhere close to capacity. And the improving economy and loosening of credit markets has made the programs less necessary.
Investors took this as good news because it suggests the economy and financial system is starting to stand on its own. It's also good news because it shows the Fed is willing to be somewhat proactive in shutting off liquidity.
To me, this is more important.
*****In one form or another, the U.S. government has made (read:created) something like $11 trillion available to fight this recession. (I'm not sure anyone knows the exact number.) The government has been widely praised for its response to the financial crisis. Its moves are credited with averting a more serious problem.
But that's only half the job, and it's the easy half, at that. I expect many of you have seen how a toddler reacts when it's time to give up the pacifier. Kicking and screaming is an understatement. And that's exactly how it will happen when the Fed really starts taking away the liquidity pacifier for good.
Alan Greenspan never had the stones to give the U.S. economy the tough love it needed. And Wall Street became a spoiled bunch of delinquents.
Will Bernanke have what it takes to guide the U.S. economy from dependent child to responsible adult? We'll see. And we better hope so, because I suspect the stakes are even higher this time around…
*****While the U.S. is creating debt to support its economy, China is using its currency surplus to secure raw materials. I mentioned yesterday that China's state-run oil company Sinopec (NYSE:SNP) is trying to acquire an oil exploration company for $7.2 billion. And it wasn't that long ago that China tried to take a $19 billion stake in mining giant Rio Tinto (NYSE:RTP).
When you're an investor, you have to be worried about opportunity cost. That's the cost of profits that you could have made, if your investment capital wasn't tied up in under-performing or illiquid assets.
Right now, and probably into the future, the U.S. will be suffering opportunity cost as so much of our resources are tied up in simply supporting our economy.
*****Case in point: Iraq. Iraq is one the verge of opening the deal-making process for international oil companies to upgrade Iraq's oil fields. This promises to be a very convoluted process - the Kurds and Parliament want input and the current oil minister appears ready to bypass them both.
All Iraqis realize how important oil, and oil revenue, is to their future, and they're all fighting to get a piece of the action and avoid the exploitive situation that occurred before Saddam Hussein kicked Big Oil out of Iraq.
For this reason, the proposed development contracts are not guaranteed. There is the risk that a subsequent Iraq government could nullify them and there would be no recourse.
The risks are high enough that Exxon-Mobil (NYSE:XOM) isn't even sure yet if it will enter the bidding process. But I'll bet you dollars to doughnuts that Sinopec's parent company, China National Petroleum & Chemical Corp. will be bidding.
Now, obviously, the recession has nothing to do with Exxon's uncertainty. But for China's state-run oil companies, national interests are sometimes more important than profits. And that can be a good thing.
*****Now, here's Jason Cimpl's video analysis of this week's action and look ahead to next week. So far he's batting a thousand. You can view the video HERE or go directly to trademasterstocks.com/videoreport.
Russell soars to highest daily close since Jan. 3
Small-cap stocks took flight Monday, with the Russell 2000 (NYSE:IWM) climbing to the highest daily close since Jan. 3, as investors shifted out of a range of other assets to pour money into equities. In addition, the rally likely triggered a wave of buy-stop orders from shorts that were unwilling to take a stand as the market once again approached fresh move highs. The Russell finished out Monday’s action up 13.18, or 1.83%, at 733.23.
The market appeared to embrace overnight gains in overseas equities, especially a rise in the largest European bank, HSBC, which was seen as a sign that the credit crunch worries are subsiding. On the U.S. side of things, Bank of America (NYSE:BAC) was up over 2.2%, but Citigroup (NYSE:C) shares struggled to hold ground. In addition, there was a renewed gush of merger giddiness on reports that Electronic Data Systems (NYSE:EDS) was a takeover target for Hewlett-Packard Co. (NYSE:HPQ). EDS was up nearly 28% before an afternoon trading halt, while HPQ was off about 5%.
Small-cap issues clearly paced the way on Monday’s rally, a move that was foreshadowed Friday when small caps eked out a minor gain even though large-cap indices lagged in the red. In recent years, small caps have tended to lead the way on rally moves, especially during the bull market run from 2002 to 2007.
The dollar jumped against the yen, but lost ground versus the euro. In all, the currency market action Monday appeared to be a net positive for equities, with some traders explaining away the lost ground against euro as a result of carry trades into high yielding FX markets.
Stock market investors also appeared to breathe a sigh of relief that crude oil prices were tame to start the week, with crude oil down about $2 a barrel from a fresh morning record peak. Given a large mass of economic data still to come this week, it will be interesting to see if equities can look past the crimped consumer purchasing power stoked by record-high energy prices.
Speaking of the data smorgasbord, the first big number of the week comes out Tuesday morning in the form of retail sales. In addition, Federal Reserve Chairman Ben Bernanke will speak on liquidity measures before the opening. With more . . .
Small caps higher on firm dollar, soft crude oil
Small-cap shares opened higher Monday, lifted by advances in overseas equity markets, a firm U.S. dollar and a dip in crude oil prices. At 9:55 a.m. ET, the Russell 2000 (NYSE:IWM) was up 0.86, or 0.12%, at 720.91.
The U.S. dollar was up nearly 1% against the yen into the market open, and pushed about 0.2% higher versus the euro. The firm dollar tone was linked to a $2-per-barrel pullback in crude oil futures, which came off Friday’s record highs amid profit-taking.
Financial shares could find a boost this morning from a jump in the largest European bank HSBC, which climbed about 2% overnight on profit news. Early on this morning, Citigroup (NYSE:C) was up 0.6% and Bank of America (NYSE:BAC) was up about 0.8%. Other large-caps of note included Wal-Mart (NYSE:WMT), which was up 1.2% shortly after the opening on optimism ahead of earnings. Research in Motion (Nasdaq:RIMM) jumped 2.4% on news that the company was unveiling a new BlackBerry Bold Smartphone.
A massive earthquake in China overnight caught trader attention, but a lack of details seemed to leave the market without a feeling for whether or not it would have an impact on equities in the United States.
Looking ahead to this week’s action, the economic calendar picks up steam after a relatively tame risk quotient last week. Not only will the market have to navigate through a batch of important data on retail sales, inflation and housing starts, but there is a glut of Federal Reserve speakers on the docket.
Speaking of Fed speakers, Chicago Fed President Charles Evans was the first one up to the plate this morning, saying that housing was still a drag on the economy, and that growth risks were to the downside, but inflation risk was on the upside. He said that U.S. growth should improve in the second half of the year, but . . .
Russell 2000 futures down
The bears and the bulls are doing battle in pre-market trading. The bears are reacting to news this morning that Wachovia Corp. (NYSE:WB) swung to a first-quarter loss. The Charlotte, N.C.-based bank will sell common and preferred stock to raise money.
Futures fell but started improving on news before the opening that U.S. retail sales unexpectedly rose 0.2% in March, according to the U.S. Census Bureau. Economists were expecting sales to stay flat.
The Russell 2000 came under heavy selling pressure Friday, sinking 19.26, or 2.72%, to 688.16. Look for key support Monday at 681, then down at 672. On the upside, resistance is at 696, then at 705 and 712.
This week is full of big economic releases and the Retail Sales data could set the tone for the week ahead. The 10:00 a.m. ET Business Inventories report doesn’t carry the kind of volatility of the Retail Sales release, but could spark a mild bobble in equities.
Surprise rally lifts Russell 2000
On a year-to-date basis, the Russell 2000 has shed 11.26%, while the Dow is down 8.44% and the S&P 500 has decreased 10.41%.
Stocks small and large opened with steep declines but managed to recover midway through the session on news of a report by rating agency Standard & Poor that said the end is in sight for writedowns stemming from the mess in the subprime mortgage sector.
Also helping the bulls establish their dominance was news of a bill proposed by House Financial Services Committee chairman Barney Frank that would allow the U.S. Federal Housing Administration to refinance mortgages that have been written down by lenders.
Small-caps confidently moved into the green at about 12 p.m. ET and never looked back.
The bearish mood in the morning was partially due to news from the U.S. Commerce Department before the opening that retail sales dropped 0.6% in February, defying economists’ forecasts for an increase of 0.2%.
Russell 2000 futures sag
There is little in the way of economic news today, so stocks will probably be looking for direction. Officials from the U.S. Federal Reserve are set to speak later today and investors will be looking for clues about future monetary policy.
The buyers emerged again on Thursday, lifting the Russell 2000 10.29 to 702.78, just above the 20-day moving average. Key support remains at 688 and 680, but if the latter is breached, the market could slide quickly toward 671. On the upside, resistance comes in today at 712 and 721.
The release of the wholesale inventories data at 10:00 a.m. ET shouldn’t generate much of a response from the stock market, leaving traders time to focus on fundamentals, technicals and election issues into the weekend.
CMGI, American Electric Technologies and Hoku Scientific lead small-cap percentage gainers
CMGI, Inc. (Nasdaq: CMGI), American Electric Technologies, Inc. (Nasdaq: AETI) and Hoku Scientific, Inc. (Nasdaq: HOKU) are among the biggest percentage gainers in Tuesday's trading among companies with market capitalizations under $750 million.
Here are today's biggest percentage gainers:
Pre-market: Accredited Home Lenders Holding Co., Cumulus Media Inc. and Hoku Scientific Inc. lead small-cap volume
Top Monday small-cap percentage gainers: Gigabeam Corp., Cumulus Media Inc., China Shenghuo Pharmaceutical Hldg Inc.
Gigabeam Corp. (Nasdaq: GGBM), Cumulus Media Inc. (Nasdaq: CMLS) and China Shenghuo Pharmaceutical Hldg, Inc. (AMEX: KUN) are among the biggest percentage gainers in Monday's trading among companies with market capitalizations under $500 million.
Here are today's biggest percentage gainers:
Cumulus Media Inc. to be bought out
Cumulus Media Inc. (Nasdaq: CMLS) continues to soar an hour into Monday morning trading on news that an investor group led by Lew Dickey and an affiliate of Merrill Lynch Global Private Equity will acquire the company.
Under the terms of the deal, Cumulus Media stockholders will receive $11.75 in cash for each share of Cumulus common stock, which represents a premium of approximately 40.4% over Friday’s closing price.
The deal is seen closing in early 2008.
Shares of Cumulus Media surged 33.57%, or $2.81, to $11.18 Monday morning.
Cumulus Media is the second-largest radio company in the U.S.
