Russell opens slightly lower
Small-cap stocks edged slightly lower in early trading, with the Russell 2000 (NYSE:IWM) down 1.09, or 0.15%, at 720.79 at 10:00 a.m. ET.
The market found support into the opening on news that Mars Inc. and Warren Buffet’s Berkshire Hathaway (NYSE:BRK) were acquiring Wrigley (NYSE:WWY) for a reported $22 billion to $23 billion. Buffet said his stake was $6.5 billion and that he was acting as a financing agent for the deal. From a broad market standpoint, merger and acquisition activity helps suggest that the worst of the credit crunch may be in the market’s rear view mirror. Wrigley shares were up about 28% on the opening.
In addition, Kirk Kerkorian’s Tracinda Corp. said it would purchase 20 million shares of Ford Motor Co. (NYSE:F) at $8.50 a share, which was up $1 from Friday’s close. Ford shares were up about 9% after the opening.
It was interesting that the market was not initially higher in the wake of this morning’s news, but it’s possible that any boost from the M&A news could be dulled at this stage because of the big economic risk still ahead of traders this week. Wednesday serves up first quarter preliminary GDP, otherwise known as part of the “official recession” question, and then we’ll also have an FOMC announcement Wednesday afternoon and the jobs report Friday morning.
Commodity price inflation remains a concern for the market, with crude oil notching a fresh record high overnight just shy of $120 a barrel. In addition, food conglomerate Tyson Foods Inc. (NYSE:TSN) posted quarterly losses and said that high feed costs would crimp results for the upcoming year. Soybean, wheat and corn futures were expected to trade sharply higher this morning.
Among individual small-cap shares, there were several small banks among early percentage decline movers, with The Bancorp Bank (Nasdaq:TBBK) down about 10% on earnings news. Also, Sucampo Pharmaceuticals (Nasdaq:SCMP) tumbled nearly 13%. On the upside, DaiEi Inc. (Nasdaq:DAIEY) gapped higher on the opening, and was up about 13% without fresh news.
Within broad market sectors, tires and rubber firms were down about 3.5%, while thrifts and mortgage financials were down almost 3%. Automobile manufacturers were up over 6% and food distributors were up over 5%.
From a chart standpoint, the Russell is hovering near important long-term resistance at 724, which marks a 38.2% Fibonacci retracement of the entire bear market collapse. In addition, the market has stalled along this 724 zone before, which enhances its value as a test. If small caps can power through 724 with conviction, then the next key upside chart test is at 731, where a double top from the February highs looms. On the downside today, if the market stalls here, then support is at 715 and 707.50.
