Russell extends morning swoon amid dreadful econ data
Small-cap stocks remained under heavy selling pressure into mid-session, as yet another soft economic data report kept a dark mood in tow for investors. At 12:55 p.m. ET, the Russell 2000 (NYSE:IWM) was down 20.37, or 3.03%, at 651.22, hitting the lowest point on intraday charts since mid-July.
The market was already in a foul mood this morning following news that unemployment claims soared to a seven-year high – which is not encouraging on the eve of the big monthly jobs release. Then, just to rub a little salt in that wound, factory orders came in well below the forecast at minus 4%, compared with expectations for a slide of 2%. Wednesday’s dreadful ISM Manufacturing Survey already suggested that manufacturing was in recession territory, and today’s factory orders report certainly didn’t do anything to squash those fears.
Although most prognosticators are predicting the House will approve the revamped version of the $700 billion “Paulson Plan” bailout of the financial market credit mess, there is still some uncertainty lingering in the air. After all, everyone expected the House to OK the previous plan before they shot it down last week. History repeatedly shows us that the stock market tends to trade aggressively in only one direction amid uncertainty – and that is south.
The push for a safe-haven has been evident so far today, with money moving into Treasury products. The yield on benchmark 10-year notes is down about 1.7% (yields move inverse to price) which reflects strong demand for Treasury products. The dollar is on a strong upward thrust today, lifted primarily by a sinking euro after the ECB kept rates steady at its policy meeting today and the ECB chief cautioned that economic risks were to the downside.
The rally in the dollar put a dent in commodity prices, with the Commodity Research Bureau Index sinking 3.4% into midday trading. Gold was down about 4%, and silver absolutely was hammered to the tune of 10% declines. Crude oil was down sharply, and commodity-themed stocks were under heavy selling pressure today, which accelerated losses in the Russell.
Individual small caps on the move today included Matrix Service Co. (Nasdaq:MTRX), which tumbled 20% to two-year lows following earnings news. Elbit Imaging Ltd. (Nasdaq:EMITF) slumped 18% to about 2 ½-year lows and Gevity HR Inc. (Nasdaq:GVHR) was off about 18% as well.
Looking at the chart picture, today’s slide through key support at 660 triggered a fast wave lower, with the market eventually slicing through 650 before attracting buyers. The Russell 2000 has tested the 650 zone on three previous occasions this year and every single time it was a great buy. However, repeated testing of this zone could eventually break down buyer resolve and clear the way for another leg down in the bear market. For the rest of the session, look for resistance on a bounce at 666 and 674, while support is at 647, 643 and 639.
