Sellers still ruling roost
Small-cap stocks started out the week on the same bearish trajectory that was in play late last week, and some of the same themes were blamed for this morning’s ugly start, including worries over corporate profits, the deepening recession and delays on various government stimulus programs. At 10:02 a.m. ET, the Russell 2000 (NYSE:IWM) was down 3.47, or 0.78%, at 440.05.
The ISM Manufacturing Survey came in at 35.6, which was a little better than the projection of 33, but still historically low. The stock market appeared to bounce mildly off the morning lows after the report came out.
Earlier this morning ahead of the opening, the personal income report showed a slight upside surprise in the headline income figure, which came in at minus 0.2%, just above the projection for a decline of 0.3%. However, the spending figure fell 1.0% after being down 0.8%, which shows consumers are retrenching their spending habits to brace for the recession.
Some of today’s early pullback was likely fueled by declines in overseas markets, with Europe off about 2% into the U.S. open, while Asian stocks fell 1.8%. Japan was down 1.5%, while Hong Kong was down 3.1%, Singapore off 2.3%, South Korea down 1.5% and India off 3.7%.
In Europe, bank and financial stocks were in retreat mode following credit agency downgrades for massive bank Barclays. Here in the United States, worries about the housing and credit crises continue to plague bank stocks, which were off about 2.5% shortly after the opening.
Energy stocks also were a soft spot for the market this morning, pressured by another decline in crude oil prices, which were off about $1.25 a barrel on the opening amid worries about demand in a difficult global environment and rising inventories. The U.S. dollar was up modestly against the euro, which could also weigh on commodities if the greenback strengthens throughout the session. Treasury prices were higher, which could pull away money from stocks.
Individual small caps on the move this morning included bulk shipper DryShips Inc. (Nasdaq:DRYS), which gapped lower and shed 17% making another of its almost daily appearances near the top of the movers list. DRYS appears to still be reeling from news late last week that the firm canceled a vessel purchase to reduce capital expenditures. Sticking with the shipping theme, Todd Shipyards Corp. (NYSE:TOD) fell 17% on a little early volume spike. ADC Telecommunications Inc. (Nasdaq:ADCT) was down 13% as the firm updated the outlook and announced job cuts. Bucking the early downtrend, Odyssey Marine Exploration Inc. (Nasdaq:OMEX) was up almost 28% amid news that the firm has found the HMS Victory shipwreck.
The chart picture for small caps has deteriorated following last week’s slide back below the key swingline at 450. Sustained action below that line this week would support an extension of the downswing back toward a retest of the lows. The key support point is down at 427; ahead of that level, mild support is visible today around 435.50. On the upside, resistance should be at 449, then at 454 and 461. The Dow slipped through the January lows this morning, but the Russell is still holding above that support zone. It will be interesting to see if the Dow breach triggers selling in other market cap index products as well.
