Small caps take a breather, crude dip supports

Kevin Pendley | Jul 23, 2008 10:08am EDT | Comment

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Small-cap stocks hovered near steady levels in early trade, pulled down modestly at times by sporadic profit-taking from short-term traders who caught the rally Tuesday and by a mixed tone on the earnings front. However, selling was limited by an extension in the crude oil pullback and by gains in overseas stock markets. At 9:50 a.m. ET, the Russell 2000 (NYSE:IWM) was up 1.24, or 0.17%, at 718.06.

Crude oil prices were down about $1 dollar a barrel shortly after the open, supportive to stocks, but the bounce above overnight lows took some of the upside steam away from equities. The energy market has been sinking this week as Hurricane Dolly veers away from key production areas in the Gulf of Mexico and on worries about demand for high-priced crude oil amid sluggish economic conditions in the United States and new usage curbs in China.

The decline in energy prices overnight was a boon to equity markets around the world, with Hong Kong shares up 2.7%, Taiwan up 3.5%, Japan up 1%, Australia up 2%, Singapore up 3%, South Korea up 1.9% and India up 5.9%.

In conjunction with the pullback in crude oil prices, the U.S. dollar has caught a bid the last couple of days. The greenback was up about 0.3% against the euro this morning and about 0.4% versus the yen. A stronger dollar often has a bearish impact on global commodity values since so many products are priced in dollars. Also on the commodities front, grains markets are expected to trade sharply lower today amid improving Midwest weather and the firm dollar tone.

The early glimpse of “big-name” corporate earnings was a mixed bag this morning, with fast-food giant McDonald’s Corp. (NYSE:MCD) topping the forecast and rising 1% overnight, but slipping into the red shortly after the open. Also, Pfizer Inc. (NYSE:PFE), the maker of Viagra, reported solid results and rose 2.8%. Conversely, Washington Mutual (NYSE:WM) reported sloppy earnings and was down 1.2%, while Costco (Nasdaq:COST) warned they would miss the Street’s forecast and tumbled 12%.

Broad market sectors on the rise early today included managed health care, thrifts and mortgage finance firms, coal and automobile manufacturers. On the downside, hypermarkets, general merchandise stores, investment banks and restaurants were attracting sellers.

Individual small caps of note included Vitran Corp. Inc. (Nasdaq:VTNC), which gapped higher after reporting earnings, but quickly trimmed away those opening gains and was up about 2.5% shortly after the open. Cascade Financial Corp. (Nasdaq:CASB) was up about 16% and has been in rally mode since making move lows last week. US Airways (NYSE:LCC) showed that Tuesday’s surge was no fluke and was up another 19% this morning.

For today’s action, look for resistance in the Russell at 720 and 726 (assuming 717.50 doesn’t hold up as a key point). On the downside, support is pegged at 707.50, 701 and 694. Short-term momentum studies were actually a little stretched into the opening today, which could stall immediate upside progress, but is not an issue on a daily or weekly basis.