Steep opening slide seen with Europe down, China orders slump
Small-cap stocks are expected to open sharply lower following a stiff decline in European equities and a mild drop in Asian markets overnight. Manufacturing data in China and Europe was awful, which sparked losses in industrial metals and intensified a dour tone for crude oil. Stock index futures were down 2.8% in after-hours trading, which suggests the Russell 2000 (NYSE:IWM) will open near 462.
The slump in China orders and pullback in European manufacturing comes just ahead of manufacturing reports in the United States this morning, with the ISM Manufacturing Survey and Construction Spending reports set for release at 10:00 a.m. ET.
Copper and aluminum prices tumbled in Asian trading after the weak China manufacturing data, which could spill over into U.S. action this morning, weighing on commodity-themed stocks. Speaking of commodities, crude oil prices were off some 4% overnight, which should pressure energy shares.
Amid all the bearish talk this morning, one bright spot for small-caps is that Mentor Corp. (NYSE:MNT), a supplier of breast implants and other aesthetic goods, will be purchased by Johnson & Johnson (NYSE:JNJ) for $31 a share, effectively doubling the market cap for MNT.
The chart picture for small caps has some short-term bullish signals in play, but those signs will lose power if the sharply lower opening projection comes about as expected. Support today is at 461, 452.50, 442 and 435. If the market starts to rally, the key point to watch on the upside is at 491.24. If that point is taken out, it would break a string of lower lows and lower highs we’ve seen on recent corrections.
