Waiting to exhale after big two-day surge
Small-cap stocks are expected to open near steady levels as investors mull over the big two-session advance in prices and short-term longs book profits. The Russell 2000 (NYSE:IWM) was basically unchanged overnight, and large-cap futures indices were narrowly mixed.
The international trade report showed that the U.S. deficit narrowed to minus 56.7 billion, which was better than the forecast for a deficit of minus 61.5 billion, helped by a weaker U.S. currency, which makes exports of U.S. goods more attractive.
The dollar was narrowly mixed right before the trade report, and firmed against the euro after the data. The market will often see big moves in foreign currency markets on the trade report, but the action was quite tame after today’s release.
Stock markets around the world were mixed overnight, with Asia shares primarily lower. Stocks in Russia jumped 3%, but shares in Japan were down 0.9%, Hong Kong off 1%, China down 0.5%, India down 1.8%, Taiwan down 0.4%, Singapore down 0.3% and Australia up 0.5%.
Crude oil prices slipped to three-month lows overnight, but recouped a $1-a-barrel decline heading into the U.S. stock market open, bouncing back from $113 to $114. Some of the overnight selling was tied to news that Russian officials ordered an end to the military conflict in Georgia.
Financial stocks were on weak footing this morning, with Citigroup (NYSE:C), Morgan Stanley (NYSE:MS) and Wachovia Corp. (NYSE:WB) all sinking overnight. The latter two companies both were involved with offering reimbursements or settlements on auction-rate securities, a move that already has taken place for Citigroup. Goldman Sachs Group Inc. (NYSE:GS) was downgraded by analysts overnight and could be under pressure within the financial sector as well.
Other themes or stocks that could be in play this morning include the airlines after analysts at JP Morgan upgraded Continental Airlines Inc. (NYSE:CAL) and Alaska Air Group Inc. (NYSE:ALK). Also, Zoltek Companies Inc. (Nasdaq:ZOLT) was down sharply in after-hours trading after reporting quarterly results.
The chart picture is a little overbought on short-term momentum readings, and the Russell came close to the breakout objective Monday, which could stall upside progress as the hot money longs who caught the breakout take profits. Look for support on a pullback at 748, 742 and 734. On the upside, resistance is at 758, 763 and 769.
