Opening slide on tap after dour weekly jobs data
Small-cap stocks are expected to open sharply lower, pressured by concerns about the global credit contagion and a leap in unemployment claims to seven-year highs which completely offset any optimism tied to the Senate’s approval vote for the financial rescue plan. The Russell 2000 (NYSE:IWM) is expected to open about 1% lower, which would translate to an open near 664.50.
The weekly claims report came in at 497,000, which was way above the forecast of 468,000. In addition, the government revised last week’s number slightly higher. The somber claims figure will only sour the mood in front of Friday’s big monthly Labor Department report on payrolls and the unemployment rate.
The Senate passed the rescue plan by a vote of 74 to 25, and the revamped bill will now move over to the House for a vote, which will likely take place Friday. With the addition of tax cuts and FDIC bank deposit measures, the House is expected to pass the bill.
If the jobs report Friday comes out with bad news (like another rise in the unemployment rate), it would be hard to anticipate that the House would be willing to risk not passing the $700 billion bailout.
The Senate was expected to pass the revamped “Paulson Plan” rescue bill, and in a classic case of “buy-the-rumor, sell-the-fact” stock markets around the world did not stage an immediate relief rally on the Senate’s OK. European shares were higher heading toward the U.S. opening, bolstered by news that Swiss banking giant UBS would post a small quarterly profit. However, markets in Asia were struggling, with Japan’s Nikkei down 1.9% to a three-year closing low.
Stocks in the news overnight included ImClone Systems Inc. (Nasdaq:IMCL), which surged some 8% amid chatter the firm is in buy-out talks with Eli Lilly and Co. (NYSE:LLY). Micron Technology Inc. (NYSE:MU) was off some 10% overnight following sloppy quarterly results.
The chart structure retains a bearish bias for the Russell 2000, and the market needs to sustain price action above 660 to avert a much deeper foray. There is a little double bottom on hourly charts near 657.25 that stands as minor support below that point, but in reality, any move back below 660 would be very troubling. From a shorter perspective today, look for support on a pullback in the 666 to 664 area. On the upside, resistance is pegged at 680, 689 and 697.
