Russell set to join Dow in bear market territory
Small-cap stocks are expected to open sharply lower today, pulled down by firm crude oil prices, the ongoing credit crisis and safe-haven flows away from stocks. The Russell 2000 (NYSE:IWM) was off about 1% in overnight trading, which would suggest an open near 683. The technical definition for a bear market designation is a 20% decline off the highs, and that number is at 685.18 for the Russell.
Crude oil prices were up about $2 dollars in European trading, climbing back to $142 dollars a barrel, which keeps heat on equity markets that are sensitive to energy input costs. In addition, the quick recovery move takes some edge off the argument for a topping pattern when the market pulled back off fresh record highs Monday.
In overnight trading, Fortune Brands (NYSE:FO) tumbled more than 5% as the company lowered guidance because of the sluggish U.S. economy.
Stock indices around the world were in a selling mood overnight, with European shares down about 2% heading toward the U.S. open. European banks were hit hard, with UBS sinking 6% to 10-year lows amid the credit crunch. India shares were off 3.7%, South Korea down 0.2%, Singapore down 1.3%, Australia down 1.4%, Taiwan down 1.5%, China off 3.3% and Japan down 0.1%.
Later this morning, the market will get a chance to react to the ISM Manufacturing Survey, which comes out at 10:00 a.m. ET. Construction spending data will be released at the same time, but will likely get lost in the shuffle to the ISM report. Throughout the day, vehicle sales numbers will come out, and there is a chance that General Motors Corp. (NYSE:GM) will be unseated as the No. 1 car sales manufacturer to American customers for the first time in history.
Looking at the chart picture, the market slipped through key support late Monday at 690, and a slide through 688 would smash the 61.8% Fibonacci retracement line of the March-June rally. A convincing breach of that line suggests that the rally off the March bottom was corrective in nature — not bottom forming. The next key chart support zone is near 681. If the market slips through that zone, then we could see a support “vacuum” as the next major point isn’t seen until the Russell approaches 668.
