Bounce; Tuesday’s losers attract bargain buyers today

Kevin Pendley | Feb 11, 2009 10:40am EST | Comment

Rating: Unrated [rate it]

Small-cap stocks pushed higher in early trading Wednesday, supported by scattered bargain hunting after the big downside press Tuesday on disappointment over a lack of details in the bank rescue plan. Bank, financial and commodity stocks were among the leaders on the early rise today after getting battered Tuesday. At 9:53 a.m. ET, the Russell 2000 (NYSE:IWM) was up 5.41, or 1.21%, at 451.17.

Investors will continue to keep a close eye on developments out of Washington today, with hearings slated on the first distribution of the TARP funds, ongoing banter about the stimulus plan and any “damage control” following Tuesday’s messy response to Treasury Secretary Timothy Geithner’s rollout of the bank bail out package.

The MBA Mortgage Applications Index fell 24.5% in this week’s report, slipping back to the lowest level since November. The purchase sub-index was down 9.8% to the lowest level since December 2000 and this decline in mortgage activity took place even though mortgage rates actually edged slightly lower in the latest week.

“Despite this week's decline in fixed mortgage rates, mortgage rates have drifted higher since the beginning of the year,” Steven Wood, chief economist with Insight Economics, said in an email. “As a result, mortgage activity has collapsed since the first of the year. Moreover, these data are for applications, not approvals; anecdotal evidence indicates that fall out rates are running as high as 50% so the actual effects on economic activity are far weaker than these data indicate. The housing market is still mired in a deep recession with no indication that a bottom has yet been reached,” Wood said.

In addition to the MBA report, the monthly trade report was released and showed the smallest trade gap in nearly six years, but that gap was still a tad bigger than expected. The report reflected the lowest auto import figure in some 10 years. The trade report will have a negative impact on GDP, Wood said.

Crude oil futures were on the rise this morning, providing support to energy stocks. Within the commodity realm, gold prices jumped to a four-month peak and the Gold and Silver Index was up 1.8% shortly after the open. Small-cap gold stock Golden Star Resources Ltd. (AMEX:GSS) was up about 3%.

Stocks in the news this morning included Research in Motion Ltd. (Nasdaq:RIMM), which presented a downbeat outlook that sparked a pullback in the maker of the Blackberry gadget and likely put a little chill through tech stocks as the tech-laden Nasdaq 100 was clearly lagging the other market indices early today.

Individual small caps on the move this morning were highlighted by financial firms, tied to the bounce off Tuesday’s tumble in bank stocks. Small-cap bank First M&F Corp. (Nasdaq:FMFC) gapped higher and was up 19%. On that same theme, Union Bankshares Inc. (Nasdaq:UNB) was up 15% and Codorus Valley Bancorp Inc. (Nasdaq:CVLY) was up 9%. Outside of the financial arena, Macrovision Solutions Corp. (Nasdaq:MVSN) was up about 13% as the entertainment technology firm got an earnings-related lift. On the downside, Great Plains Energy Inc. (NYSE:GXP) tumbled 21% after the firm reported results after the close Tuesday.

Tuesday’s collapse in the Russell pushed the index back below the 20-day moving average and is now close to a test of minor trendline support off the Jan. 23 low. A breach of that trendline would suggest further downside probing toward that Jan. 23 low, which came in at 431.25. As for resistance, if the market starts to climb today look for tests to develop at 454 and 461.