Heroic comeback as car sales surprise, oil slips off highs

Small-cap stocks staged an impressive recovery rally Tuesday afternoon, bouncing back from three-month lows and reversing a 15-handle collapse as vehicle sales came in better than feared, and crude oil prices slipped back off the intraday highs. The Russell 2000 (NYSE:IWM) closed up 1.93, or 0.28%, at 691.59.

Finding a silver lining in car sales from domestic icons General Motors Corp. (NYSE:GM) and Ford (NYSE:F) seems like a stretch when one considers GM sales were off 18.5% and Ford’s sales collapsed 28%, but GM did manage to retain its title as the car sales king when many were predicting that Toyota would steal the crown away for the first time in history. GM shares stormed back 10% at one point today before retreating in the final minutes of trading. GM stock has been falling off a cliff of late, reaching 54-year lows Monday. Even Ford managed to climb back briefly into the green before settling down after plunging to 17-year lows in the morning.

It’s worth noting that volume today was brisk in cash and derivatives markets, even though this was expected to be a slow march toward a holiday-shortened week. Apparently the dramatic slide into bear market territory for small caps brought some of the bulls out of slumber and clearly attracted some bears who either couldn’t hang on to losing trades anymore, or who couldn’t resist riding the wave lower.

Despite the impressive recovery bounce off the lows, some market watchers remain unconvinced that a major low is at hand. “I think the market is far, far away from the bottom still. We haven’t felt enough pain yet, inflation is understated and we could see the Russell slide another 20% over the next 18 months if we don’t get a turnaround in this economic news and on the inflation front,” Dominic . . .

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