Small caps tumble from intraday highs

Small-cap stocks tumbled hard from intraday highs Wednesday as investors digested another rate cut by the Federal Reserve, and the statement accompanying the move. By the close, Russell 2000 (NYSE:IWM) shares were down 2.75, or 0.38%, at 716.17.

Although the overall decline for the day was tame, the slide off the FOMC peak was relatively dramatic. Small-cap stocks initially pushed higher on the rate cut news, but then descended into a freefall that saw the Russell shed 13 handles or nearly 1.8% from high to low.

The bullish capitulation seen in equities after the FOMC news could have simply been a classic case of a “buy the rumor, sell the fact” market response, especially considering that stocks pushed higher into the news. The S&P 500 Index cracked figure resistance at 1,400 shortly after the FOMC decision, but quickly joined small-cap shares on the retreat as investors shied away from the market. It’s worth noting that the Russell clearly led the overall stock market on the way down as selling enthusiasm kicked into gear about 30 minutes after the rate cut announcement.

“I think the markets were perfectly positioned for the Fed, and are now worried about the payroll report,” Nick Kalivas, vice president of financial research with MF Global, said in an email interview with SmallCapInvestor.com. “Financial and retail shares have not confirmed the rally and this is a technical negative that may have sparked profit taking. Small caps are down mostly on a beta trade, but property casualty and regional banks are the weakest names. This may be a negative reaction to the FOMC and Cash America is off on an Ohio bill that limits interest on payday loans,” Kalivas said. He also anticipated that small caps would tread water sideways to lower heading toward Friday’s employment report, as traders would likely be unwilling . . .

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