Small caps end in the green

Kevin Pendley | May 09, 2008 4:39pm EDT | Comment

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Small-cap stocks closed out the week with a meager advance Friday, bucking the red ink seen in the Dow and S&P 500, which is a supportive sign for stocks in general as small caps tend to lead the way for equities — especially in recent years on the way up. The Russell 2000 (NYSE:IWM) rose 0.50, or 0.07%, to 720.05. For the week, small-cap shares were down 0.78%, which seems pretty tame in the face of renewed fretting about the credit crunch crisis and the highest crude oil prices in the history of the planet.

Crude oil futures shot above $126 dollars a barrel Friday, and have now soared about 11% since the beginning of May amid supply jitters out of Africa, geopolitical tension in the Middle East and tightening stocks of distillates. Not to mention a feeding frenzy from the bulls and a panic scramble by the shorts. With national pump prices already north of $3.50 a gallon, this week’s surge in crude oil prices will be a bitter pill for many Americans, already squeezed by rising food costs and sinking home equity. The ballyhooed economic stimulus package may lose some impact as the funds simply go to pay off consumer debt and fill the gas tank, not to “fuel” economic growth. Some airline carriers have announced fuel surcharges in recent days, and Northwest Airlines (NYSE:NWA) and Air Canada joined that chorus today.

The market came into Friday’s session on the defensive amid renewed concern about the credit crisis after American International Group (NYSE:AIG) reported larger-than-expected quarterly losses. AIG tumbled about 8% for the day, and was a major drag on the large-cap index products. The dour mood on financial stocks spread to Citigroup (NYSE:C), which shed 2.2% today. Pharmaceutical companies also took a hit, with Bristol Myers Squibb (NYSE:BMY) off 4.8% and Mylan Inc. (NYSE:MYL) down nearly 9%.

Among individual small caps, Pegasystems Inc. (Nasdaq:PEGA) surged 20% after announcing quarterly earnings. McGrath Rentcorp. (Nasdaq:MGRC) jumped about 16%, also fueled by solid earnings news. Genoptix Inc. (Nasdaq:GXDX) rallied over 13% on unusually brisk volume after posting earnings. On the downside, 3D Systems Corp. (Nasdaq:TDSC) gapped lower, and sank on heavy volume, losing some 39% after releasing earnings. Deltek Inc. (Nasdaq:PROJ) also fell hard Friday, tumbling nearly 34% on heavy volume, also tied to earnings disappointment. GeoEye Inc. (Nasdaq:GEOY) pushed down 16% on brisk turnover tied to earnings news.

From a charting standpoint, the market continues to consolidate sideways just shy of the 731 zone, an area that turned back the rally in early February. The daily structure is a little more top-heavy than weekly patterns, but it would still take a sharp slide from here to suggest that the rally off the March lows was corrective and not bottom forming. The key upside test next week remains at 731, with 708 down to 700 on the downside the area to watch.

Looking ahead to next week’s action, the economic calendar picks up steam, highlighted by Retail Sales on Tuesday, CPI Wednesday and Housing Starts Friday. In addition, several Federal Reserve officials — including Chairman Ben Bernanke — will be out on the speaking circuit, which could provide further hints about the economic situation.