Russell rises as crude oil slips, durables impress

Kevin Pendley | May 28, 2008 10:14am EDT | Comment

Rating: Unrated [rate it]

Small-cap stocks pushed higher on the opening, lifted by another slide in crude oil prices overnight, and by a pleasant upward surprise on durable goods data ahead of the opening. At 9:52 a.m. ET, the Russell 2000 (NYSE:IWM) was up 0.72, or 0.11%, at 735.11.

Crude oil prices have now tumbled more than 5% off last week’s record highs, and were pressured overnight by news that Saudi Arabia would increase production and that Asian demand could begin to ebb because of high price levels. In general, the commodity story was under pressure early today, with gold sinking about 2% and grains prices expected to tumble this morning.

There was some thought that traders might be unwinding some of the long crude oil/short dollar trades that have been so popular in recent months. The greenback was on a bid this morning, climbing 0.3% against the euro, and about 0.7% versus the yen. In general, a strong dollar at this stage of the economic cycle is seen as supportive to equities, reflecting investment flow demand and softening food and energy prices, which would bolster consumer purchasing power.

Back to the durable goods report, the headline figure came in down 0.5%, which was better than the forecast for a slide of 1%, but the real surprise was on the ex-transportation figure, which was up 2.5%, well clear of the median expectation for a gain of 0.5%. The MBA Mortgage Application survey also came out this morning, and reflected slack demand, with the index down 4.6% and the purchase index off 17.4%. This is a volatile data base and appeared to be overshadowed by the durables surprise. The economic data push for today is now out of the way; later this afternoon Minneapolis Federal Reserve president Gary Stern is slated to talk about regional, national and world economic events.

Broad market sectors on the rise this morning included apparel and accessories, department stores, footwear and airlines. Meanwhile, commodity-related sectors were attracting sellers, with the biggest early declines seen in agriculture products, metals and mining, exploration and production, coal and gold.

Small caps on the move early today were highlighted by Daktronics Inc. (Nasdaq:DAKT), which gapped higher on the open and shot nearly 18% on positive earnings news. Akeena Solar (Nasdaq:AKNS) rose 12% without fresh news and Versant Corp. (Nasdaq:VSNT) jumped about 8%, benefiting from earnings. On the downside, Tomo Therapy (Nasdaq:TOMO) was off some 8% without any apparent news to fuel the move.

The following small-cap firms are slated to release earnings later today: CBRL Group Inc. (Nasdaq:CBRL), Daktronics Inc., Jo-Ann Stores Inc. (NYSE:JAS), Coldwater Creek Inc. (Nasdaq:CWTR), Synovis Life Technologies (Nasdaq:SYNO) and Applied Signal Technology (Nasdaq:APSG).

From a chart standpoint, the solid opening bid this morning lifted the Russell 2000 above immediate resistance at 735, which leaves a minor intraday test at 740, then more staunch resistance at 744 and 750. On the downside, 731 now stands as support today, with the next levels at 726 and 720.50. If the market can sustain today’s early strength, then it will help lessen the damage incurred by last week’s failure. However, a reversal back toward the 720 level in the face of good news on crude oil would clearly be a sign that other troubles are in the mix. Scott Fullman, market strategist with WJB Capital Group, noted that Tuesday’s surge lacked momentum and that internal market indicators were mixed. Fullman said that new highs on the NYSE and Nasdaq declined on the rally, while new lows increased.