Lower opening expected
Small-cap stocks are expected to open lower, in line with a 0.3% decline in after-hours trading on the Russell 2000 (NYSE:IWM) that would translate to an opening near 701.50 in the cash index.
Although Asian stocks were higher overnight, European equities turned down slightly ahead of the U.S. opening, which tugged stock index futures into the red. Bank stocks in Europe remain a bearish target amid massive debt write-downs and efforts to raise capital. Within the financial arena, bond insurer Ambac Financial Group (NYSE:ABK) took a 5% hit overnight on soft earnings, which helped counter positive news from Broadcom Corp. (Nasdaq:BRCM) after they handily beat the earnings forecast. Upbeat profits from search giant Yahoo! Inc. (Nasdaq:YHOO) were seen as not enough to bolster a takeover bid from Microsoft Corp. (Nasdaq:MSFT), and therefore did not ignite a bullish response in overnight trade.
Traders will continue to keep an eye on the U.S. dollar today after the Dollar Index tumbled to one-month lows yesterday and cash euro/dollar values hit record highs. In addition, crude oil is on the radar screen after hitting record highs yesterday and prompting an 11% collapse in the Amex Airline Index, bringing it to record lows (the Index is down some 69% from the January 2007 peak).
There are no economic reports today to sidetrack the earnings focus, and so far small-cap stocks have been weak relative to large caps into this earnings season as small-cap banks would likely struggle to raise capital in the crunch compared with huge banks. In addition, the weak U.S. dollar has helped some firms with an overseas customer base, but small caps often rely much more heavily on domestic sales for health.
From a chart perspective, initial support in the Russell 2000 Index is at the “figure” point at 700. Below there, support comes in at 695 and 685. Intermediate term traders will likely focus on 680/672 as the key support. For today’s action, resistance comes in at 708 and 715.
