Small caps seen lower on hedge fund closure
Small-cap stocks are expected to open lower, pulled down by news of a hedge fund closure and residual selling from Tuesday’s bearish reversal. The Russell 2000 (NYSE:IWM) was down about 0.6% in overnight trading, which would suggest an opening near 734.
Hedge fund Ospraie Management LLC, announced after the close Tuesday that they would shutter operations. The fund was thought to have had some $2.8 billion under management at the beginning of August, but was leaking oil on commodity-themed equity trades. Ospraie has ties to Lehman Brothers Holdings Inc. (NYSE:LEH) as the investment bank owns some 20% of the hedge fund. There are concerns that this will only hamper LEH efforts to either raise capital or find a buyer, and the Ospraie news overshadowed a newspaper report overseas that HSBC, a Chinese bank and several other hedge funds have expressed interest in taking a stake in LEH.
It will be interesting to see if money flow once again shifts into Treasury assets. Considering the news on Ospraie, Tuesday’s big afternoon push into safe-have assets such as Treasury products makes sense. Ahead of the opening, Treasury bonds and notes were only up slightly, which means the overnight slide in equities was fueled by other concerns.
It’s worth noting that trends that used to spark buying in stocks — lower energy prices and a strong dollar — were in play again overnight, but to no avail for equities. Tuesday’s reversal off morning highs came in the face of a massive slide in crude oil prices, which raises concerns that other elements are at play in the selling. This morning, crude oil was down about $1.20 dollars a barrel toward $108.50, and the U.S. dollar was on a roll against the euro, climbing 0.6% to fresh seven-month highs.
Some of the stocks in the news this morning included The Coca Cola Co. (NYSE:KO), which announced plans to buy Chinese juice maker Huiyan for $2.5 billion, which would be the largest takeover yet of a Chinese company. Also, Staples Inc. (NYSE:SPLS) released earnings before the opening, which were in line with expectations. H and R Block Inc. (NYSE:HRB) is also slated to release earnings today.
Looking at the chart picture, there is a double bottom on intraday studies from Tuesday’s action near the lows around 731.50, which stands as important support this morning. Below that point, support is at 726 and 720.50. If the market can right the ship today, then resistance comes in at 742 and 748.
