Small caps climb as crude slips below $130

Kevin Pendley | May 27, 2008 10:15am EDT | Comment

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Small-cap shares pushed higher, lifted by a sudden reversal in crude oil prices, which took the market back down below $130 dollars a barrel after reaching $133 overnight. The stock market navigated through consumer confidence and new home sales data this morning without too much damage, even though neither report was particularly rosy. At 10:08 a.m. ET, the Russell 2000 (NYSE:IWM) was up 9.51, or 1.31% at 733.61.

The consumer confidence headline figure came in at 57.2, which was below the forecast of 60.0 and tumbled to a 16-year low. New home sales came in at an annualized rate of 526,000 units, which was slightly above the projection for 520,000. Although new home sales were up 3.3% in April, they were still down 42% from last year, which marked the largest year-over-year decline in about 27 years, according to the Commerce Department.

Before the new home sales figures came out, the Case-Shiller U.S. home price index reported a dive in first quarter home sale prices, which tumbled 14.1% from the same period last year. The figures were in line with analyst expectations.

Crude oil prices took a tumble right before the stock market opening, retreating from $133 to break the psychological figure at $130, which provided support to equities. In conjunction with the pullback in crude, the U.S. dollar jumped about 0.3% vs. the euro, which also helped stocks open in the green.

European shares were down slightly this morning heading toward the U.S. opening, pulled lower by soft consumer confidence data out of Germany, and a slide in French business confidence to the lowest point in over two years. European markets appeared to resume jitters about the credit crunch overnight, with bank shares slipping to a two-month low.

After last week’s 17-handle slide in the Russell 2000, it will be interesting to see if the market can stabilize during this week’s shortened trading activity, especially given a full run of economic data on the docket throughout the week. Looking at today’s action, key support comes in at 720.50, with more nearby support at 726. The upside points to watch are at 735, then at 744. A decisive move back above 735 would put heat on new shorts from last week’s decline.

In other overnight news, former Federal Reserve Chairman Alan Greenspan said in an interview with the Financial Times that the U.S. is still likely to suffer a recession but that the odds have gone down and the chance for a severe recession has come down “markedly.”

Broad market sectors this morning in the green were topped by airline stocks, which were hammered last week, and by home furnishing retail, apparel retail and departments stores. On the downside, gold, refining and marketing, coal and metals/mining stocks were attracting shorts.

Individual small caps on the early move included Security Bank Corp. (Nasdaq:SBKC), which shot up some 14% after the opening, without any fresh news out. RC2 Corp. (Nasdaq:RCRC) jumped about 8% on the opening, also sans news. On the downside, ATA Inc. (Nasdaq:ATAI), slipped 8% without fresh news.

The glut of earnings has slowed now to a trickle. Small-caps set to release earnings later today include Modine Manufacturing Co. (NYSE:MOD), and Sourceforge Inc. (Nasdaq:LNUX). San Francisco Federal Reserve President Janet Yellen will talk about the economic outlook and policy implications at 11:50 a.m. ET, which could attract some market attention at midday.