Stocks seen jumping on open with steep crude oil decline
Small-cap stocks are expected to jump higher on the opening, boosted by a selling rout in commodities and a surging U.S. dollar. The Russell 2000 (NYSE:IWM) was up about 1% in after-hours trading, which would suggest an open this morning near 746.50.
The big story so far today is a dramatic collapse in crude oil futures, which were down some 6%, sinking over $6.50 a barrel, below $109. Crude oil prices fell hard after it became apparent that Gustav did not appear to destroy major Gulf production sites. In conjunction with the oil move, other commodity markets were in freefall mode, with copper tumbling 2% in London, while aluminum was at a seven-month low and following a slide to five-month lows for nickel on Monday. Cocoa was down 5%, gold was off 2%, platinum down 3% and palladium down 5%.
The extreme decline in commodities was accompanied by a rally in the U.S. dollar. The greenback was up about 0.7% against the euro, making fresh highs while climbing to the highest point since early February. The dollar was also up 0.6% versus the yen.
Although oil stocks stand to weather a difficult session today, the benefit to airlines, consumer stocks and tech stocks should be more than enough to carry equities higher. UAL Corp. (Nasdaq:UAUA) jumped more than 15% in overnight trading, and small-cap airline US Airways Group Inc. (NYSE:LCC) was up some 16%.
In addition to the commodity-tied surge, financial shares appear set to start out the week on a positive note, with Lehman Brothers Holdings Inc. (NYSE:LEH) rallying 7% in after-hours trading on news that the Korea Development Bank confirmed it was in talks with Lehman about a joint investment in the firm with other Korean banks.
Coming into this week’s action, the chart picture is still dominated by bearish patterns, including the double top off the highs, and the fact that last week’s comeback was accomplished on very light volume. However, if the market can sustain this morning’s opening push, it will help chip away at those concerns. Given the projection for a sharp opening rise, the market should be in position to test the recent intraday highs just below 748; above there, resistance is at 754, then at 763. If the market starts to falter this morning, look for support at 734, then at 726.
