Slip as homebuilders, retail offset banks

Kevin Pendley | Feb 09, 2009 4:37pm EST | Comment

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Small-cap stocks edged slightly lower Monday, unable to build on the big rally from Friday as the market encountered headwinds on retailer, homebuilder and consumer product stocks that overcame positive movement on bank and financial shares. The Russell 2000 (NYSE:IWM) closed down 2.76, or 0.59%, at 467.94, and is now off 6.3% for the year. Meanwhile, the Dow is down 5.8% for 2009, while the S&P 500 is down 3.7%.

Bank stocks continued to perform solidly today, even though a delay in the announcement of the bank bail out plan was deemed necessary by the Obama Administration in order to focus attention on the fiscal stimulus debate. Energy shares were an important upside force for stocks much of the day, slipped hard in conjunction with the weak close in crude oil, but then staged a bounce back into the close. For the day, energy shares gained 0.3%.

Commodities were a bright spot for the market through much of the day, but faded late with the Commodity Research Bureau index slipping into negative territory by the close, led by the reversal in crude oil and a slide in copper, which pulled back after hitting two-month highs in New York trading.

Crude oil futures closed down 1.5%, or $0.61 a barrel, at $39.56, slipping back below the $40 level after trading above $42 in the morning. Concerns about demand and the global economic slowdown eventually caught up with talk that OPEC leaders were considering further production cutbacks.

There was also some thought that investors were starting to fret about the stimulus plan vote, which was expected at some point today. Stumping for the plan on a trip to Indiana, President Obama said, “I am calling on Congress to pass this bill immediately. Endless delay or paralysis in Washington in the face of this crisis will bring only deepening disaster.”

Even when the market was trying to rally earlier in the day, there were warning signs that the move lacked staying power. For one thing, small caps were noticeably lagging strength in large-cap indices; and for another thing, market breadth in the form of gainers versus losers and new highs versus new lows favored the bearish side of the ledger.

Volume was relatively thin much of the day for stocks as traders were preoccupied watching for news out of Washington on either the stimulus package or on the bank bail out. Quite a few details of the bank bail out plan have already leaked out, so it will be interesting to see if the market maintains a bullish posture on bank and financial shares after Tuesday’s press conference on the plan by Treasury Secretary Timothy Geithner.

Regional banks were a notable standout today, appearing to gain support ahead of the bank bailout news Tuesday. Several small-cap firms fall into that category, including Huntington Bancshares Inc. (Nasdaq:HBAN), which gapped higher Monday and soared some 22%. Within that same group, Fifth Third Bancorp (Nasdaq:FITB) jumped about 12%.

Elsewhere on the individual small-cap front, ViroPharma Inc. (Nasdaq:VPHM) tumbled 51% on unusually heavy volume on news that the firm’s antiviral compound failed to meet the late-stage trial goal. Mercury General Corp. (NYSE:MCY) fell nearly 19% as the insurance firm reported earnings. On the upside, emergency tow maker Miller Industries Inc. (NYSE:MLR) rallied 16% to the highest point since late November without news, but the rise was forged on fairly light volume.

The chart structure for small caps sports an inside session pullback today on light volume, which carries very little downside “oomph” for the market. The bigger concern is that the Russell is stalling in the shadow of the previous highs from late January near 474 and need to pop through that zone or it will gain in stature as a powerful resistance area. Looking ahead to Tuesday’s session, the market will be on pins and needles waiting for the Geithner press event on the bank bailout; in addition, Federal Reserve Chairman Ben Bernanke is slated to testify at the House around 1:00 p.m. ET. A morning report on wholesale inventories at 10:00 a.m. ET isn’t likely to spur that much trading interest.