Small caps soar; financial, energy shares pace gains

Kevin Pendley | Nov 24, 2008 12:43pm EST | Comment

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Small-cap stocks soared into mid-session trading, with financial, energy and gold stocks driving an impressive rally to provide confirmation of Friday’s big rally. The market continues to find bullish inspiration on economic advisor appointments by President-elect Obama, who announced his team today in just the second major press conference since he won the presidential vote earlier this month. At 12:27 p.m. ET, the Russell 2000 (NYSE:IWM) was up 16.15, or 3.97%, at 422.69, leaving the market on track for the biggest two-day gain since the Oct. 10 bounce.

Most of Obama’s key selections had already been leaked to the press, and helped fuel the rally on Friday. There is a sense among investors that the fact Obama has made these moves on his economic appointments so quickly shows that the economy is his top priority as the nation lurches through the worst financial malaise since the Great Depression. The market dipped slightly off the highs (losing about 1.5 percentage points) about 15 minutes into Obama’s press conference today when he said that he would not announce a dollar figure for his stimulus plan. There were hopes among some investors that he would announce a plan that was bigger than $700 billion.

The other big news event this morning was a government rescue package for the nation’s No. 2 bank, Citigroup Inc. (NYSE:C). The plan calls for $306 billion in guarantees on toxic assets and a direct cash injection of $20 billion. Citigroup shares soared some 60% on the news, providing a lift to financial stocks in general as the bailout quashes some systemic risk fears.

Crude oil prices extended the morning rally into midday as well, rising some $4 a barrel, which stoked a 5% surge in energy stocks. Commodities in general were a big factor in the stock market rise today, supported by a slide in the U.S. dollar against the euro (which makes commodities priced in dollar terms more attractive). Gold stocks were seeing huge gains today, boosted by safe haven flows.

Looking at sector activity today, there were 10 S&P sector groups with double-digit gains, led by investment banks and brokerage firms, diverse financial instruments, wireless telecoms, homebuilders, coal and real estate services firms.

Individual small caps in rally mode today include Wimm-Bill-Dann Foods OJSC (NYSE:WBD), which jumped 39% as Russia’s largest dairy company generated a huge bounce off 52-week lows set last week. SL Green Realty Corp. (NYSE:SLG) jumped 35% as the real estate investment trust embraced the Citigroup bail out plan, as Citigroup is the firm’s biggest tenant. General Cable Corp. (NYSE:BGC) rallied 36% as the copper, aluminum and fiber optic cable manufacturer rose off last week’s lows with the overall bounce in commodity shares today.

From a charting standpoint, the Russell pushed through initial support at 424, but slipped back below that line into the Obama presser. Above that point, the next resistance zone is at 433, then at 442. If the market erodes this afternoon, minor support is at 417, with a better test down at 406.