Mild slip on claims report
Small-cap stocks edged lower, unable to maintain a mild opening gain as a jump in unemployment claims to 26-year highs cast a shadow over surging mortgage activity and better-than-feared durable goods orders. Commodities were struggling early today, with crude oil sinking and industrial metals slumping to four-year lows, which weighed on commodity themed stocks. At 9:54 a.m. ET, the Russell 2000 (NYSE:IWM) was down 2.26, or 0.48% at 466.37.
The weekly unemployment claims report came in at 586,000, which marks a new cycle high and is the highest in 26 years and which also was above the projection of 550,000. In addition, the four-week moving average was at 26-year peak, but the number of Americans remaining on unemployment insurance (known as continuing claims) came in at 4.37 million, which was slightly below projections and helped take some of the sting off the leap in headline claims.
The government is scrunching a bunch of data into a short time frame this week because of the holiday, and durable goods orders and personal income data came out this morning in tandem with the claims release. The durable goods report came out at minus 1.0%, which was much better than the forecast for a slide of 3.0%, and which helped tug stock index futures up off the lows. The personal income report came in at minus 0.2%, which was below the projection for no change.
Earlier this morning, the weekly MBA Mortgage Application Index jumped 48% to the highest point since July 2003 and the refinance sub-index soared 62.6% to the highest point since July 2004 (roughly corresponding with the housing boom peak). The surge in mortgage activity was powered by a decline in 30-year mortgage rates to 5.04%, the lowest level since June 2003. There is some hope that a resurgence in mortgage activity will help put a bottom in the moribund housing market and that the rise in refinance activity will free up consumer funds to help spending.
Markets overseas were lower overnight, but several countries were already closed for the Christmas holiday. In Europe, energy shares were a drag on the market, pulled down by yet another slide in crude oil prices. Shortly after the opening today, crude oil prices were off $1.30 dollars a barrel and energy stocks were down 1.4%.
Elsewhere on the commodities front, copper prices tumbled to a 4-year low in London trading, rejecting a short-lived rally amid ongoing worries about the recession in the U.S., UK and Japan and slower growth in key consumer China. Also, the Baltic Freight Index slipped lower, which could weigh on shippers – a group that has seen quite a bit of bargain hunting in recent weeks.
Individual small-caps on the rise this morning included Supertex Inc. (Nasdaq:SUPX), which rose almost 10% as the semiconductor maker gapped higher to reverse steep losses from Tuesday’s session. China Eastern Airlines Corp. Ltd. (NYSE:CEA) also gapped higher today and rose 12% as the firm received a $1.46 billion line of credit. Detour Gold Corp. (OBB:DRGDF) jumped 15% on very light volume without any apparent fresh news behind the move.
From a technical analysis perspective, the market continues to meander along in sideways fashion. Even recent declines have been confined to the larger range, leaving the market waiting for a more definitive breakout move. Trading could be choppy and volatile today with so many investors out of the market for the holiday and with the market closing early at 1:00 p.m. ET, which heightens simple price risk. The key downside spot early today will be at 461. A breach of that point sets next support at 452.50, then at 444. On the upside, resistance is at 478 and 484, but the key level truly starts at 491.
