Small caps pace midday surge; investors shrug off econ data

Kevin Pendley | Nov 26, 2008 1:03pm EST | Comment

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Small-cap stocks took flight into mid-session trading, outperforming large caps as investors appeared more confident in looking for “riskier” fare following three days of rallies – at least on the stock market side of things. At 12:40 p.m. ET, the Russell 2000 (NYSE:IWM) was up 12.38, or 2.79%, at 455.56.

Demand for U.S. assets appeared quite brisk today, with stocks higher, Treasury bonds and notes higher and the dollar climbing against 1.6% against the euro, and reversing earlier losses against the yen to gain 0.2% on that currency. Even with a firm greenback, commodities were doing just fine, with the Commodity Research Bureau Index of 19 physical markets up nearly 1% and crude oil prices climbing 3.5% after holding key chart support near the $50-dollar-a-barrel range. As a result, energy shares were doing well today, with the Energy Select Sector SPDR Fund up more than 1%.

The market seemed willing to cast aside a batch of mostly awful economic data from this morning as no surprise. There is a general perception that when the market turns it will take place long before the actual economy bottoms out, and that psychology continues to attract bargain hunters who aren’t too shell shocked from the historic September collapse. Investors also appeared to get a lift from news that President-elect Obama named former Fed chief Paul Volcker as the chief for his economic advisory board, saying they will implement a growth plan from “day one.”

Looking at sector activity, automobile manufacturers were on a roll today, with General Motors Corp. (NYSE:GM) up 31% and Ford Motor Co. (NYSE:F) up 21%. Office electronics were up, and so were construction-themed companies. Tire and rubber, coal, homebuilding, metal and mining and even hotel stocks were attracting buyers so far today.

Looking at individual small caps ATP Oil & Gas Corporation (Nasdaq:ATPG) jumped 30% as the offshore oil and gas firm was in a familiar small-cap theme: trying to mount a lasting rally after setting long-term lows last week. Orient Express Hotels Ltd. (NYSE:OEH) rallied 27% as the luxury hotelier and travel company appeared to attract bargain hunters in the hotel group. SeaChange International Inc. (Nasdaq:SEAC) was up 23% as the video-on-demand software firm benefited from an earnings-related boost. On the downside, Icahn Enterprises LP (NYSE:IEP) tumbled 17% as the holding company had a sharp pullback from Tuesday’s big recovery rally.

From a technical analysis perspective, the Russell 2000 was testing the 454 zone (with quite a bit of success) into midday; decisive action above that point would leave 468 as the next key chart zone to watch. If the market starts to struggle this afternoon, support is at 442, then at 433. Trade could become choppy this afternoon as derivatives trading on foreign exchange and interest rate products will close early ahead of Thursday’s Thanksgiving Day holiday in the United States.