Oil stocks, money flow provides midday boost

Kevin Pendley | Aug 26, 2008 1:41pm EDT | Comment

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Small-cap stocks held in higher ground through midday trading, with commodity names bolstered by a rise in oil prices while money flow into stocks was supported by a strong U.S. dollar and soft credit instruments. At 12:50 p.m. ET, the Russell 2000 (NYSE:IWM) was up 3.58, or 0.50%, at 724.12. Small caps were outperforming other index products, buoyed by gains in small energy names.

Energy stocks were also providing the biggest boost to large caps, with Exxon Mobil Corp. (NYSE:XOM) up 0.9% and Anadarko Petroleum Corp. (NYSE:APC) surging 5% as the firm announced plans for a $5 billion share buy-back program.

This morning’s rush of economic data in the United States on housing and consumer confidence brought a mixed picture, with the housing market still sinking, but consumer confidence climbing above market expectations. Still, confidence is low historically, and likely got a lift from the pullback in gasoline pump prices in recent weeks. If crude oil starts to climb back above $120 and higher, then a new crisis of confidence could be just around the corner.

Speaking of crude oil, the market for black gold was up about $0.75 a barrel, slipping back below $116 dollars, down from the $117 level on the morning highs. The energy market is reluctant to get carried away on the sell side right now until they get a better picture of how Hurricane Gustav will track through the Gulf of Mexico in the coming days. Meanwhile, the U.S. dollar remained strongly higher against the euro, up about 0.8%, near the highest point since February.

It should be noted that volume on today’s stock market trading has been light, with many traders on holiday to enjoy the last few weeks of the summer season. In fact, the move so far today in the Russell has been confined to an inside session of the more dynamic decline from Monday … in trader parlance, it has something of the appearance of a “dead cat bounce.”

Looking at broad sector performance today, thrifts, oil exploration, gas utilities, gas storage, general merchandise stores and home improvement retail were among the top performers. On the downside, electronic components, specialized finance, automobile manufacturers, internet retail, internet software services, restaurants and homebuilder stocks were all out of favor.

Individual small caps on the move included Sanderson Farms Inc. (Nasdaq:SAFM), which was off 11% after earnings disappointed amid high feed costs. Ruby Tuesday Inc. (NYSE:RT), slipped 5% as the restaurant sector was a sore spot for investors today. Small caps attracting buyers included Comverge Inc. (Nasdaq:COMV), which rallied nearly 10% following solid earnings results. GSI Commerce Inc. (Nasdaq:GSIC) was up 8% as the firm inked a 15-year contract extension with Dick’s Sporting Goods.

As the afternoon progresses, the Russell appears headed to test important resistance at the 726 line. Repeated failure there would suggest a new lower range is on tap for small-caps, and it would provide additional validation for the reversal top off the recent peak. Above 726, resistance next comes in at 734. If the market starts to wobble toward the close, look for support at 720.50, then at 714.50.