Modest early dip as commodity, tech stocks on weak footing
Small-cap stocks pushed lower, pulled down by erratic profit-taking in thin post-holiday trade following four days of extreme gains. The focus now will shift to reports on retailer sales as the “Black Friday” hordes swarm shops in search of holiday bargains. If the shopping fervor disappoints, there is some concern that Black Friday will turn into “Blue Monday” by the time we get back to normal stock market trading activity next week. A soft tone in commodities and a pullback on chip-maker stocks overseas weighed on small caps and tech stocks this morning. At 10:10 a.m. ET, the Russell 2000 (NYSE:IWM) was down 6.19, or 1.32%, at 462.67.
Ahead of U.S. trading today, stocks around the world were mixed, with Europe lower and Asia predominantly higher. Japan’s Nikkei was up 1.6%, while Hong Kong’s Hang Seng was up 2.4%. Australia’s all-ords jumped 4.3% and markets in Singapore were up 1.2%. Equities in India were up 0.7% as the market there opened for trading for the first time since the terrorist attacks in Mumbai that claimed more than 120 lives and injured hundreds more people.
In Europe, energy and mining stocks were down earlier today. Crude oil prices slipped some 3% in London trading but trimmed losses into the U.S. market open. OPEC ministers are gathering in Cairo, which heightened some concern that they could decide to trim production further in an effort to bolster sagging energy prices, but it seems unlikely they would make any decision right now about production changes. Overnight, economic data out of Europe was somber, with unemployment climbing to a 20-month peak and confidence plunging to a 15-year low. The dreary data coming out of Europe matches awful returns we’ve been seeing on the economic front here in the United States.
“Despite the dismal near-term news, we feel a bit better about the broader outlook than at this time last week,” researchers at Goldman Sachs said in a daily economic report. “The reason is that fiscal and monetary policymakers have started to signal a much more proactive stance. On the fiscal side, senior Democrats have hinted at a sizable stimulus package, to be enacted shortly after President-elect Obama’s inauguration. Senator Charles Schumer (D-NY) gave a $500 billion to $700 billion range for the total cost, while Obama himself said that the package would be designed to create 2½ million jobs by January 2011. Our interpretation of these statements is that the incoming administration is considering a package consisting of a mixture of spending and tax cuts that totals $300 billion to $500 billion per year for up to a two-year period.”
The U.S. dollar was in rally mode this morning, jumping some 1.4% against the euro, which could put commodity markets on the defensive (as well as commodity-themed stocks). Yields on Treasury products were still getting a mild safe-haven bid this morning, but the velocity of the move appeared to take a pause from the dramatic downside swoon that has pushed yields to record low levels in recent days. Strong demand for U.S. assets has decoupled the typical push-pull relationship between credit and equity instruments of late and helped retain a bid for the dollar – especially against European currencies.
Individual small caps of note this morning include Callon Petroleum Co. (NYSE:CPE), which collapsed 63% amid analyst downgrades. Golar LNG Ltd. (Nasdaq:GLNG) slipped 5%, as the Norwegian liquid gas tanker firm also saw analyst downgrades. Texas Pacific Land Trust (NYSE:TPL) tumbled 10%, giving back some of the big bounce off last week’s move lows. On the upside, Harry Winston Diamond Corp. (NYSE:HWD) rallied 21% in the glow of earnings news.
Looking at the chart picture, the Russell continues to reflect a positive short-term slant off the bullish reversal bottom from last week’s lows. Look for support today at 450, then at 442 and 433; meanwhile, resistance comes in at 468, then at 480 and 492. The market will close early today at 1:00 p.m. ET for the holiday, which means we could be looking at light volume, choppy trading.
It’s worth noting that today is traditionally a bullish day for equities, even if the post-holiday session tends to generate light volume. With the shorts on the run right now and chart patterns holding some promise, it makes it more difficult to short the market with conviction until the market develops a more powerful stall point along logical resistance.
