Steep opening fall on claims report, global rout, safe-haven flows
Small-cap stocks tumbled to new lows on the open, pressured by a gloomy report on employment in the United States and sinking equities around the globe. Safe haven flows continue to pummel stocks as investors move money into credit products. At 10:03 a.m. ET, the Russell 2000 (NYSE:IWM) was down 11.07, or 2.68%, at 401.31.
The weekly unemployment claims report produced another sour picture of the nation’s jobs situation. More people filed for unemployment insurance last week than any previous 16 years. What’s more, the four-week moving average was at a 25-year peak and continuing claims – the number of people remaining on unemployment insurance – reached 4.012 million, the highest in nearly 26 years. When the claims report came out, stock index futures were only off about 0.5%, but tumbled to 2% losses by the opening as the market absorbed the claims numbers.
In addition to the gloomy claims report, data on manufacturing from the Philly Fed Survey came out below expectations at 39.3 and the leading indicators report came in at minus 0.8%, below the forecast for a drop of 0.6%.
Around the globe, stocks were in retreat mode once again. In Japan, the market was down 6.9% as the world’s second-largest economy reported that exports to its Asian trading partners was down for the first time in six years, yet another sign of slowing activity among emerging economies. Speaking of emerging markets, Russia and Turkey were off some 4% heading into the U.S. open, and the whitewash for emerging market equities has been brutal, with those countries down a combined 62% for the year. Elsewhere overnight, Hong Kong was down 4%, Taiwan off 4.5%, Australia off 4.1%, Singapore down 3.1%, South Korea down 6.6% and India down 3.6%.
Crude oil prices were in full retreat mode again this morning, pulling down energy and commodity stocks as well. Crude oil prices were off some $3 a barrel into the stock market open, slipping below $50 for first time since January 2007. Copper futures were limit down in Shanghai overnight; copper is seen as a barometer of economic health and the market for copper has been in a freefall for the last few months.
Flight to quality remains a big part of the collapse story right now. The yield on benchmark 10-year notes was down a stunning 5.2% into the stock market open, reaching the lowest level since June 2003 as investors around the world pour money into Treasuries looking for a safe haven. Yields on two-year notes hit record lows overnight, and the yield on T-bills is now near the panic lows from October.
Individual company news is somewhat lost with all the macro developments today, but investors are still closely watching the automakers looking for a resolution on an aid package to the embattled firms before lawmakers break for a holiday. General Motors Corp. (NYSE:GM) was off 10% on the open.
As for small caps on the move this morning, VeriFone Inc. (NYSE:PAY) tumbled 26% as the electronic payment firm made a preliminary comment on quarterly results. Woodward Governor Co. (Nasdaq:WGOV), gapped lower and lost 27% as the energy solution provider also took an earnings lump. Another energy firm with a big morning slide was Suntech Power Holdings Co. Ltd. (NYSE:STP), down 29%, also from sour earnings news. On the upside, a Brazilian ADR, Ultrapar Participacoes SA (NYSE:UGP), rose 16% as the fuels distribution and chemical firm rose on light volume buying.
The chart structure for small caps is awful right now, with the Russell 2000 in freefall mode through support points that date back more than five years. The “figure” point at 400 stands as logical support and is now within reach. Below there, support could be fairly quick around the 395 area, which was a resistance zone back in late 2002-early 2003. If the market can stabilize today, the resistance will be at 419, then at 433.
The weekly unemployment claims report produced another sour picture of the nation’s jobs situation. More people filed for unemployment insurance last week than any previous 16 years. What’s more, the four-week moving average was at a 25-year peak and continuing claims – the number of people remaining on unemployment insurance – reached 4.012 million, the highest in nearly 26 years. When the claims report came out, stock index futures were only off about 0.5%, but tumbled to 2% losses by the opening as the market absorbed the claims numbers.
In addition to the gloomy claims report, data on manufacturing from the Philly Fed Survey came out below expectations at 39.3 and the leading indicators report came in at minus 0.8%, below the forecast for a drop of 0.6%.
Around the globe, stocks were in retreat mode once again. In Japan, the market was down 6.9% as the world’s second-largest economy reported that exports to its Asian trading partners was down for the first time in six years, yet another sign of slowing activity among emerging economies. Speaking of emerging markets, Russia and Turkey were off some 4% heading into the U.S. open, and the whitewash for emerging market equities has been brutal, with those countries down a combined 62% for the year. Elsewhere overnight, Hong Kong was down 4%, Taiwan off 4.5%, Australia off 4.1%, Singapore down 3.1%, South Korea down 6.6% and India down 3.6%.
Crude oil prices were in full retreat mode again this morning, pulling down energy and commodity stocks as well. Crude oil prices were off some $3 a barrel into the stock market open, slipping below $50 for first time since January 2007. Copper futures were limit down in Shanghai overnight; copper is seen as a barometer of economic health and the market for copper has been in a freefall for the last few months.
Flight to quality remains a big part of the collapse story right now. The yield on benchmark 10-year notes was down a stunning 5.2% into the stock market open, reaching the lowest level since June 2003 as investors around the world pour money into Treasuries looking for a safe haven. Yields on two-year notes hit record lows overnight, and the yield on T-bills is now near the panic lows from October.
Individual company news is somewhat lost with all the macro developments today, but investors are still closely watching the automakers looking for a resolution on an aid package to the embattled firms before lawmakers break for a holiday. General Motors Corp. (NYSE:GM) was off 10% on the open.
As for small caps on the move this morning, VeriFone Inc. (NYSE:PAY) tumbled 26% as the electronic payment firm made a preliminary comment on quarterly results. Woodward Governor Co. (Nasdaq:WGOV), gapped lower and lost 27% as the energy solution provider also took an earnings lump. Another energy firm with a big morning slide was Suntech Power Holdings Co. Ltd. (NYSE:STP), down 29%, also from sour earnings news. On the upside, a Brazilian ADR, Ultrapar Participacoes SA (NYSE:UGP), rose 16% as the fuels distribution and chemical firm rose on light volume buying.
The chart structure for small caps is awful right now, with the Russell 2000 in freefall mode through support points that date back more than five years. The “figure” point at 400 stands as logical support and is now within reach. Below there, support could be fairly quick around the 395 area, which was a resistance zone back in late 2002-early 2003. If the market can stabilize today, the resistance will be at 419, then at 433.
About the Author
Kevin Pendley covers the Russell 2000 index for SmallCapInvestor.com and writes a weekly technical analysis column.
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