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.
Commodities still the star of the show; limiting losses
Small-cap stocks remained in negative territory into midday trading even as the Dow zigzagged back and forth from lower to higher ground. Energy and commodity stocks were once again the dominant upside force for equities, countered by a weak tone in financial shares following a dour report on the jobs front this morning. At 12:20 p.m. ET, the Russell 2000 (NYSE:IWM) was down 2.01, or 0.42%, at 474.39.
Investors continue to debate over whether or not all these scary economic reports are already priced into the market, but it was hard to simply shrug off this morning’s weekly unemployment claims report, which showed that more people were filing for jobless benefits last week than we’ve seen in 26 years. Money clearly was flowing away from financial stocks this morning in favor of commodities, driven not only by the economic data, but also by a big decline in the U.S. dollar, which makes commodities priced in dollar terms more attractive and also bolsters exports for U.S.-based firms that ship goods overseas. The greenback was off more than 2% against the euro, sinking to the lowest point since Oct. 21.
The pullback in the buck was an obvious benefit to crude oil prices, which climbed back above $46 a barrel, up nearly $3 today. In addition to the currency support, crude oil prices were lifted by a report from the International Energy Agency predicting a recovery in demand in 2009 and a surprising drop in Saudi output in November. Energy stocks were up some 2.7% at mid-session, while financial shares were off about 2.2%.
The Hennessee Group Hedge Fund Index fell 2.69% in November, which was a big improvement from losses in the 6% range the previous two months, but still a poor performance historically. Hedge funds as a group haven’t made money on a monthly basis since May, which is an extreme drought for a group considered to house the most savvy traders on the planet. In addition, plunging hedge fund losses have sparked a tidal wave of redemptions, adding to the selling fire in stocks the last two months. With another poor performance for the month of November . . .
Russell remains red into midday; CVVT, AIPC, and LGCY lead gainers
Small-cap stocks remained in negative territory into midday trading even as the Dow zigzagged back and forth from lower to higher ground. Energy and commodity stocks were once again the dominant upside force for equities, countered by a weak tone in financial shares following a dour report on the jobs front this morning. Some of today’s small-cap gainers are China Valves Technology Inc. (Nasdaq:CVVT), American Italian Pasta (Nasdaq:AIPC) and Legacy Reserves (Nasdaq:LGCY).
Other Market Watch highlights today included:
• Energy stocks were up some 2.7% at mid-session, while financial shares were off about 2.2%.
• The pullback in the dollar was an obvious benefit to crude oil prices, which climbed back above $46 a barrel, up nearly $3 today.
• The greenback was off more than 2% against the euro, sinking to the lowest point since Oct. 21.
• Small-cap stocks remained in negative territory into midday trading even as the Dow zigzagged back and forth from lower to higher ground.
Small Cap Gainers:
• China Valves Technology Inc. is the top percentage gainer so far today, jumped 133% on all of 240 shares traded as the firm said they were setting up a board of directors. See (NYSE:CVVT).
• American Italian Pasta reports higher 4Q profits; shares pop 28%. See (Nasdaq:AIPC).
• Citi initiates coverage on Legacy Reserves with a "buy," price target $15. Shares are up 20% to $10. See (Nasdaq:LGCY).
• James River Coal Company up 17%, continuing rise from Tuesday when shares began to climb on an analyst's note. See (Nasdaq:JRCC).
• Royale Energy up 17% as energy stocks are extending their rally from earlier this week. See (Nasdaq:ROYL).
Small Cap Losers:
• Caraco Pharmaceuticals Labs, Ltd. rose 48% and has been on a two-day upside rampage without any apparent fresh news behind the run. See (NYSE:CPD).
• Integral Systems Inc. slumped 25% as the satellite communications firm announced preliminary results. See (Nasdaq:ISYS).
• QKL Stores Inc. tumbled 61% as the Chinese supermarket chain announced they were adding three new stores. See (Nasdaq:QKLS).
• Hecla Mining drops 24% after announcing $21 million equity transaction. See (NYSE:HL).
Macrovision Solutions, Mitcham Industries and Layne Christensen lead small-cap percentage losers
Caraco Pharmaceutical Laboratories Ltd (Nasdaq:CPD), Brigham Exploration Co (Nasdaq:BEXP) and Approach Resources Inc (Nasdaq:AREX) are also among the biggest percentage losers.
Here are the biggest percentage losers among small caps:
