Small caps sink on crude
Small-cap stocks opened lower, pressured by a jump in crude oil prices overnight, which keeps concerns about consumer discretionary spending at the forefront. At 10:05 a.m. ET, the Russell 2000 (NYSE:IWM) was down 7.33, or 1%, at 725.68.
The headline figure for existing home sales came in above expectations at 4.89 million versus the projection of 4.85 million. Although that figure was slightly better than expected, stock index futures were little changed immediately after the release. The inventory of homes for sale was up 10.5% to a record high, which may have offset any upbeat reaction to the headline figure.
Crude oil prices bounced overnight, lifted by strikes in France that could block tanker traffic and by residual support from a surprising drop in crude oil stocks in this week’s inventory data. In addition, the dollar was soft against the euro heading into today’s U.S. open, which underpinned crude oil prices.
Stock markets around the world were in a selling mood overnight, which also weighed on U.S. equities on the opening. Although Japan was up 0.2% last night, most of the other major countries were down, with Hong Kong off 1.3%, China down 0.9%, Australia down 1.0%, Singapore down 1.2% and Bombay off 1.5%. The biggest overnight loss was seen in Karachi, which tumbled 4.7% in response to a rate hike by the State Bank of Pakistan.
Large caps in the news this morning included Haliburton Co. (NYSE:HAL), which announced a bid of $3.4 billion for U.K. firm Expro International. This marks two consecutive days of M&A deals in the energy sector, and provides some upbeat psychology to the market. Haliburton shares were up 0.5% shortly after the opening.
Also, Apple Inc. (Nasdaq:AAPL) rose 2.5% early, lifted by Merrill Lynch raising its target for the firm. Intuitive Surgical Inc. (Nasdaq:ISRG) climbed 3.4%, boosted by it’s move into the S&P 500 to replace Bear Stearns. The on again, off again Yahoo (Nasdaq:YHOO) saga added another layer as the firm decided to push back its annual meeting. Yahoo shares were down about 0.2%.
Among broad market sectors, automobile manufacturers were under pressure again today, as were auto parts companies, tire and rubber shares and real estate management stocks. On the upside, by far the best performers were brewers (which seems classic ahead of a cookout holiday weekend). Also, gold and coal stocks were slightly higher, but those gains paled in comparison to the downside action among other sectors.
Individual small caps of note this morning included GTx Inc. (Nasdaq:GTXI), which gapped lower, and shed about 10% on news that the company would have to continue trials for a prostate cancer drug. Hurco Companies Inc. (Nasdaq:HURC) dropped some 15% early, pulled down by earnings news. Pacific Sunwear of California (Nasdaq:PSUN) was down over 7%, gapping to the lowest point since January on an earnings reaction. On the upside, IXYS Corp. (Nasdaq:IXYS) was up 12% early, boosted by solid earnings news.
From a technical analysis perspective, the dominant features seen on charts this week are the bearish reversal patterns set on Monday and Wednesday. On Monday, the market made new highs for the big rally off the March lows, climbing to the highest point since January; however, the market closed lower, rejecting those highs. Then on Wednesday, the market had a big bearish outside reversal session, keeping the chart picture on a heavy note. The weakness generated this week could simply be an overbought pause in the uptrend that began back in March, or it could morph into a more dynamic top. For today’s action, support comes in at 726, then down at 720.50. For longer-term traders, the key downside point is down closer to 712.50 and then at 700. As for today’s upside points to watch, 735 and 744 remain the key spots on the chart.
