Red’s the name of the game for small caps today

It’s been a roller coaster morning and small caps are close to hitting their lows of this morning again, as a disappointing existing home sales number created a cloud cover over famed investor Warren Buffett’s investment stake in now commercial bank Goldman Sachs (NYSE:GS) all against a backdrop of testimony on the bailout plan.

The Russell has remained in the red for most of the session, while the other major indices flutter between the red and green. At 12:29 p.m. ET the Russell 2000 (NYSE:IWM) was down 5.19, 0.73%, to 704.

Existing home sales for August declined 2.2% to 4.91 million, down from 5.02 million in July, and slightly less than the 4.93 million economists were expecting. National Association of Realtors said home sales rose in the Midwest and South but fell in the Northeast and West, as tight mortgage credit curtailed activity. The one supposed bright spot in the housing report was that inventory slipped 7% in the month of August. While inventory levels clearly haven’t stabilized, the decline is a step in that direction and a step towards recovery.

The broader market applauded the Oracle of Omaha’s move, as it proved that there is confidence in the system and the decimated financial services sector. Buffett’s Berkshire Hathaway will invest $5 billion in Goldman Sachs by way of preferred stock. The deal could yield potential ownership of 10%.

“The stock market has been looking to see when Buffet would do a deal in the financial sector as a major sign that we're at the bottom,” Andy Busch, global foreign exchange strategist for BMO Capital Markets, said in an email. ...

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