Recession fears counter home sales data as small caps still in red

Kevin Pendley | Oct 27, 2008 1:13pm EDT | Comment

Rating: Unrated [rate it]

Small-cap stocks retained modest losses into midday trading, unable to join large-cap indices in positive territory as worries about a global recession and slumping corporate profits continue to spark flight out of equities. An upside surprise on new home sales helped put some enthusiasm back into things, but it wasn’t enough to generate a complete turnabout in choppy trading. At 12:36 p.m. ET, the Russell 2000 (NYSE:IWM) was down 5.07, or 1.08% at 466.05.

Technology shares continued to lag the Dow and S&P 500, but not to the same extent as the Russell 2000. Tech stocks were weighed down by concerns about spending for technology in a growth-challenged global environment and by reports of loans for technology coming into default problems. Tech bellwether Microsoft Corp. (NYSE:MSFT) was down 3.2% and was one of the bigger drags on large caps.

Commodity stocks were also on wobbly footing so far today, pressured by a soaring U.S. dollar and by fears that a slowdown would crimp demand for physical goods, especially if China begins to see dramatic slowing. Crude oil prices tumbled to a 17-month low earlier today but trimmed losses as the equity market in the U.S. stabilized without too much downside probing.

Looking at broad sector activity today, insurance companies, tire and rubber stocks, coal, investment banks, office electronics, home furnishings, steel and oil exploration shares were among the worst performers. On the upside, agriculture products, regional banks, education services, telecoms, general merchandise and department stores were the top draws.

Looking at individual small caps of note, Calgon Carbon Corp. (NYSE:CCC) was down 24%, sinking to fresh 52-week lows. Telefonica De Argentina (NYSE:TAR) was off 26% as South American ADRs continue to struggle amid pension fund troubles in Argentina and worries about the sharp drop in commodity values. On the upside, Dineequity Inc. (NYSE:DIN) was up 40% on surprisingly stout earnings news.

The Russell slipped to fresh move lows this morning, but was trading in relatively stable (albeit in choppy) fashion so far today. There is support from 460 down to 458, then again approaching 450. The danger lurks in a move below 450 as there is very little support from that zone until closer to 430. On the upside, a rally today would likely find resistance near 480, then at 491.