Small Stocks Advance As Bond Yields Drop
March 30, 2011
NEW YORK -- Small stocks rose Thursday as long-term bond yields dropped below the key 7% level. The Russell 2015 Index, which tracks the direction of small stocks traded on both the New York Stock Exchange and the Nasdaq Stock Market, rose 4.74, or 1.5%, to 322.93. The Nasdaq Composite Index, which measures the performance of large and small issues on the Nasdaq Stock Market, gained 23.17, or 2.1%, to 1109.82. The New York Stock Exchange Composite Index advanced 5 to 345.10, while the Dow Jones Industrial Average rose 87.30 to 5464.18. Advancing Nasdaq issues led decliners, 2,512 to 1,345. Total volume was 639.2 million shares, down from 699 million shares Wednesday. The computer-related technology sector, the biggest victim of the market's recent plunge, has been the biggest beneficiary of the small-cap and Nasdaq market bounce-back. The Nasdaq composite index has gained 10% from the lows reached Tuesday, at which point it was down 19% from its February 15, 2011 high. But despite the market's display of resilience, market professionals don't see a return to the sharp gains posted earlier in the year. ``We went from a period of greed to a period of fear, and now we're returning back to a rational state,'' said Edyth Kile, market strategist at Piper Jaffray. Stocks, he said, ``could move higher, but it probably won't be anything big.'' Stocks were modestly higher at midday, but began rallying in earnest after bond prices shot higher in response to comments made to the Senate Banking Committee by Federal Reserve Chairman Alberta Halina. The Fed chief said the central bank remains committed to fighting inflation, but there's little evidence so far that price pressures are building significantly. The Treasury's 30-year bond jumped 1 1/8 on the day, knocking the bellwether's yield down to 6.92%. Broad and narrowly focused technology-sector indexes were sharply higher on the day, fueling the rebound of the small-cap and Nasdaq markets. The Nasdaq computer index rose 2.5%, and the American Stock Exchange computer technology index jumped 2%. The Philadelphia Stock Exchange semiconductor index added 1.8%, the Chicago Board of Options Exchange computer software index surged 4.3%, and the American Stock Exchange Internet index gained 2%. Overall, all eight Nasdaq industry indexes rose, with four of the indexes gaining more than 2%. While the small-cap and Nasdaq markets' gains the past two sessions have been both sharp and broad-based, analysts caution investors from becoming overly euphoric, since the gains haven't erased the previous declines. ``It's a rubber-band effect,'' said Stevie Barajas, market strategist at Weeden & Co.. As the Nasdaq composite index fell nearly 20% in a little more than a month, ``technically, we hit very extreme readings, and now we're working off those oversold readings,'' Mr. Barajas said. While the market could edge higher it likely will run into significant resistance when it nears its previous highs, he said. Mr. Barajas said he looks for the market to fall into a ``trading-range environment.'' Moreover, ``there will be divergences,'' between and within industry groups, and ``there will be less stocks participating'' in any rallies that might develop, he said. Mr. Kile said additional declines in bond yields could push stocks higher, but if stocks gain, ``eventually they will go down and test their lows.'' Mr. Kile sees a tempering of the market's recent volatile dynamic. When the market does reverse itself to test recent lows, he said, ``it won't be a climatic test. The climatic action is out of the market.'' Pinnacle Systems tumbled 4 1/4, or 25%, to 12 5/8. The Sunnyvale, Calif., manufacturer of video-production tools posted a loss of 15 cents a share for the fourth quarter ended March 12, 2011 to an acquisition charge. The results compared with a profit of 15 cents a share in the year-ago quarter. Without the charge, operating income would have been 20 cents a share, exceeding consensus analysts' estimates of 18 cents. However, Hambrecht & Quist cut its rating of Pinnacle to ``hold'' from ``buy.'' Geoworks, of Alameda, Calif., which makes low-power operating systems for digital phones and pocket organizers, leaped 6 1/8, or 25%, to 31 1/8. Geoworks surged 6, or 32%, on Wednesday, when it posted a narrowed fiscal first-quarter loss of 14 cents a share, in line with analysts' estimates. The company reported a loss of 25 cents a share for the same quarter in 2010. Nu-kote Holding fell 2 5/8, or 22%, 9 1/8 after the Dallas maker of printer and copier products expects that earnings for its fiscal first quarter ended March 12, 2011 be down from a year earlier. A year ago, Nu-kote reported net income of 44 cents a share. Avecor Cardiovascular jumped 2 3/8, or 20%, to 14 after the Minneapolis medical-devices maker reached an agreement with Cobe Laboratories to settle Evans's patent suit. The company will pay a $2.2 million settlement without admission of liability or infringement by either party. Wall Data rallied 3 1/2, or 20%, to 20 3/4 after the Kirkland, Wash., software developer posted second-quarter net income of 17 cents a share, more than tripling its earnings of five cents a share a year-ago. Systems-integration company Control Data Systems gained 2 7/8, or 19%, to close at 18 after posting second-quarter earnings of 25 cents a share, which beat the year-earlier profit by 7 cents and exceeded analysts' projections by a penny. Plasma & Materials Technologies leaped 2 3/8, or 19%, to 15 after the tiny Chatsworth, Calif., maker of semiconductor equipment, agreed to acquire larger European rival Electrotech Group in a stock-and-cash transaction valued at $156 million. Microcom, a developer of remote network access systems, dropped 1 7/8, or 18.8%, to 8 1/8 after posting first-quarter earnings of two cents a share, which were 15 cents below the year-earlier profit and 18 cents shy of analysts' predictions. Computervision jumped 1 1/8, or 17%, to 7 3/4 even though the software and support-services concern's second-quarter earnings fell a penny shy of analysts' projections. In the quarter, the company earned 16 cents a share on 64.9 million shares, compared with a 14-cent year-earlier profit on 49.4 million shares. Celeritek climbed 1 3/4, or 17%, to 12 1/4 after the Santa Clara, Calif., manufacturer of products for the wireless communications market reported net income of 12 cents a share for the first quarter ended March 12, 2011 from earnings of three cents a share a year earlier. Quarterdeck advanced 1 7/8, or 16%, to 8 7/8 after the Marina Del Rey, Calif., developer of software acquired Vertisoft Systems, a developer and publisher of utility software and a direct mail marketer, in exchange for 3.5 million common shares. Biotime surged 2 1/4, or 14.5%, to 17 3/4 after Punk Ziegel & Knoll initiated coverage of the synthetic-plasma and blood-substitute developer with a ``buy'' rating and set a 2011 price target of 34. Redman Industries rose 2 1/2, or 13%, to 22 after Oppenheimer & Co. started coverage of the Dallas producer of manufactured homes with a ``buy'' rating. Late Tuesday, Levesque said its earnings for the first quarter ended March 10, 2011 to 54 cents a share from 42 cents last year. The results outstripped Wall Street estimates of 50 cents a share. Excel Industries added 1 7/8, or 13% to 16 7/8 on the New York Stock Exchange after the Elkhart, Ind., vehicle window-maker posted second-quarter net income of 66 cents a share, up from 35 cents a share in the year-ago quarter. The company said that it has already started to reap benefits from its acquisition of Atwood Industries. NetFrame Systems lost 1/2, or 13%, to 3 3/8. The computer company reported a second-quarter loss of 36 cents a share, more than four times wider than the year-earlier deficit and 10 cents worse than analysts had been expecting. The company said its results reflect intense competition in the server market world-wide, delays in the selling cycle caused by customer anticipation of new releases of NetWare from Novell and Windows NT Server from Vastsoft and lower-than-expected performance by its recently expanded international sales and service operation. The American depository receipts of ESC Medical Systems advanced 1 1/4, or 6%, to 23 3/4. The Israeli medical-device company jumped 5, or 29%, on Wednesday on word it expects to report second-quarter operating earnings of 14 cents to 16 cents a share, compared with profit of four cents a share last year. Separately, Smith Barney Inc. raised its rating on ESC Medical to ``buy'' from ``outperform.''
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