Heroic comeback after early slide?

Kevin Pendley | Feb 12, 2009 12:46pm EST | Comment

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Small-cap stocks remained in negative territory into midday action, but rallied well off the morning lows as bargain hunters swooped in, hoping that this latest foray toward the range lows offered buying opportunity once again. Gains for airline, biotech, mining and IT stocks helped ease some of the losses endured in bank, financial, homebuilder and insurance shares. At 12:25 p.m. ET, the Russell 2000 (NYSE:IWM) was down 3, or 0.67%, at 444.94, after hitting an intraday low at 438.12.

The market fell hard early this morning, with the Dow sinking to the lowest point since the November lows were forged, while small caps appeared poised to test the January range lows. The market just didn’t believe a “too good to be true” retail sales report, which left another dreary reading on the employment picture as the only place to hang one’s trading cap. For those keeping score, the retail sales report was pegged up 1.0%, versus a forecast for a slide of 0.7%, while the weekly unemployment claims report came in at 623,000, slightly above the 610,000 projection. In the background of today’s news, investors continue to fret about the bank bail out plan and whether or not the stimulus bill will have too deep of a lag time to rescue the stock market in the near term.

Biotech stocks were among the top performers so far today, with the AMEX Biotechnology Index up 1.2%. In addition, the AMEX Airline Index was clinging to positive ground, up 0.2% as crude oil prices remained weak.

Speaking of “black gold” — crude prices fell below $35 a barrel this morning as worries about soft demand amid the U.S. recession continue to smack down buyers that are seduced by talk of OPEC production cuts. The dip in crude oil prices likely weighed on energy shares, which were off about 1% into mid-session.

Despite pockets of strength today, key “theme” groups, like banks and homebuilders were carrying the torch for the bears. The ISE Homebuilder Index was off 5.5%, with small-cap builder Centex Corp. (NYSE:CTX) down 10.6% and Meritage Homes Corp. (NYSE:MTH) down 13.9%.

On the financial front, banks were getting hammered, with the KBW Banking Index down 5.6% and regional banks among the weakest S&P groups. Small-cap regional bank Marshall & Ilsley Corp. (NYSE:MI) was down 7.7%, while Fifth Third Bancorp. (Nasdaq:FITB) was down 7.5%.

Retail shares also were struggling today, despite the bullish print on headline monthly retail sales data. The S&P Retail Index was down 1.8%. Small-cap active wear apparel firm Gildan Activewear Inc. (NYSE:GIL) tumbled 21% after the firm posted disappointing profit results and was downgraded by analysts.

Looking at the chart picture, how the market finishes out today’s session could be critical for setting a short-term bullish bottoming pattern on daily studies. A close below 440 would be troubling, but any close back above 445 would likely be seen as a triumph given the bleak early trading picture. For the rest of the session, look for support in the Russell at 437.50, then at 431.25. On the upside, resistance is likely to bubble up approaching 450, then again at 454 and 461.