Small caps extend rally as financial, energy shares climb

Kevin Pendley | Dec 02, 2008 12:50pm EST | Comment

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Small-cap stocks extended the rally into midday trading, boosted by a bounce in financial and energy shares after those sectors were drummed during Monday’s massive rout. Oversold conditions, bargain hunting and optimism about a bailout for beleaguered automakers fueled the upside pop. At 12:30 p.m. ET, the Russell 2000 (NYSE:IWM) was up 20.74, or 4.97%, at 437.81.

Now that the Russell pushed through the first short-term resistance line at 433.50, the next test will be up at 442 if the market can hold above 433.50 through the afternoon. A pullback should find mild support along 424, then down at 413.50 if things deteriorate.

General Electric Co. (NYSE:GE), seen as a proxy for the overall economy because of its diverse group of products, was up 10% at mid-session, providing a lift not just to large caps, but a ripple through to small caps as well.

In addition, commodity markets were on a rising tide today after getting clobbered Monday, which bolstered commodity shares. Even though crude oil prices were hovering near steady levels, energy stocks were up about 2.5%. Among S&P sectors, REITS, wireless telecoms, broadcasting firms and diverse financial services companies were the best performers. The ISE Homebuilders Index was up 7% also a sign of relief after all of the economy worries pounded stocks Monday. Airline stocks were up 5.5%, outperforming the broad market, with small-cap carriers US Airways Group Inc. (NYSE:LCC) up nearly 8% and another small-cap firm Alaska Air Group Inc. (NYSE:ALK) also up about 8%.

Automaker shares remained higher into midday as investors waited word on progress for an aid package to stave off potential failure for the Big 3. Ford Motor Co. (NYSE:F) submitted a plan calling for $9 billion in loans. The plan would also cancel global executive bonuses, would cut dealers and include development of electric cars. Ford stock was up 10% on the news, leapfrogging (on a percentage basis) General Motors Corp. (NYSE:GM), which was leading Ford overnight, but which was up just 5% at midday as investors await word on the GM plan.

Individual small caps on the move included Colonial Properties Trust (NYSE:CLP), which jumped 38% after the multifamily real estate investment trust (REIT) announced dividends. Deltek Inc. (Nasdaq:PROJ) rose 34% as the software designer generated a big outside bullish reversal on daily charts following Monday’s swoon. Williams-Sonoma Inc. (NYSE:WSM) jumped nearly 25% as the retailer operator of Pottery Barn received analyst upgrades. Advanced Medical Optics Inc. (NYSE:EYE) rose 22%, reversing a sizable decline from Monday. On the downside, Clearwire Corp. (Nasdaq:CLWRD) tumbled 20% on reports that the firm may slow its high-speed WiMax wireless network progress because of the tight credit market situation.