The bulls come out to play with small caps as oil declines

Jennifer Schonberger | Aug 11, 2008 1:06pm EDT | Comment

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It’s been a sharp upward assent for the Russell 2000 thus far this session. The small cap index remains at its high intraday, as a sparse docket of economic data pushed investors to focus on oil’s descent.

At 1:04 p.m. ET, the Russell 2000 (NYSE:IWM) had surged 15.90, or 2.17% to 750.20, while the Dow has turned green and is up 68.63, or 0.58% to 11,802.95.

Today’s rally comes on the heels of a robust performance on Friday. It’s good news to see that small caps haven’t plunged back into the red coming off that strong resurgence last week, but rather are adding to that.

After flickering between the green and the red for a good portion of the session, oil has given back roughly $2 touching a low for the session of $113 and change per barrel. The commodity remains roughly 22% below record levels of nearly $148 a barrel reached in July.

An increasing consensus for slower growth in the second half that would in turn par energy consumption has taken the forefront as the catalyst for oil, driving the commodity lower.

However, traders continue to follow the latest moves surrounding the showdown between Russia and Georgia over the province of South Ossetia. Commodities traders are focusing on whether the fighting will further damage any oil infrastructure in Georgia that would in turn thwart the transportation of oil to central Asia and Europe. Reports already show that Russian bombers struck an oil pipeline in Georgia. It is stunning that oil hasn’t reacted with a violent upswing to the damaged infrastructure, as has been the typical historical behavior recently to a possible supply disruption.

As inflation remains a major concern for investors, oil’s sell off is welcome news to a market that has been pummeled as consumers and corporations alike have been crippled by sky high energy prices.

As crude has sunken into the red, the dollar continues its assent against the euro, the major catalyst for Friday’s rally. The greenback has appreciated to $1.4927 against the euro and is shallowly trading in and out of the money against the yen midday.

Focused on oil, traders haven’t given much billing to startling news on five corporate credit unions who are sitting on large “unrealized losses” associated with mortgage securities that have plunged in value, as the ailing credit markets maintain their status quo. The “losses” are so large that they threaten the entities’ going concern and mark that even the most conservative entities are victim to the burgeoning credit crisis.

Among broader market industry groups, retail, casinos and gaming and audio and video equipment are among groups leading the market higher, while gold and silver, coal and iron and steel are under pressure midday.

Individual small-caps of note include Willis Lease Financial Corp. (Nasdaq:WLFC) whose shares have climbed 23% midday after the lessor of commercial jet engines reported before the market opened that its net earnings grew 46% in the second quarter. Willis Lease said that as airlines feel more pressure due to higher fuel prices, they increasingly turn to leasing.

Shares of AgFeed Industries, Inc. (Nasdaq:FEED) are up 11.62% on heightened volume in after the Chinese commercial hog producer and premix feed company posted second-quarter results that soared from a year ago and bested the consensus on Wall Street. The small cap also raised its full year guidance that also trumped analysts’ mean estimates.

On the downside, Sterling Construction Co. Inc. (Nasdaq:STRL) hit a new 52-week-low today after the company lowered its guidance for 2008 before the opening bell this morning. Sterling cited increased commodity prices and disappointing results on Texas highway projects for a disappointing performance so far this year as factors behind the decision. Shares have given up 14% midday.