Small caps to open higher as CPI comes in tame

Kevin Pendley | May 14, 2008 8:51am EDT | Comment

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Small-cap shares are expected to open slightly higher, erasing mild overnight losses on the release of CPI data this morning, which came in relatively tame. S&P 500 futures jumped about six handles on the CPI report, moving from negative territory to positive. If the Russell 2000 (NYSE:IWM) matches the early climb in S&P 500 futures, then the Russell should open about 0.2% higher near 738.20.

The CPI headline figure came in at 0.2%, which was below the forecast for a gain of 0.3%. In addition, the ex-food and energy component was pegged at 0.1%, which was below the median projection for a gain of 0.2%.

In overnight trading, big caps on the move include Whole Foods Market Inc. (Nasdaq:WFMI), which tumbled nearly 10% when earnings failed to meet expectations. Deere & Co. (NYSE:DE) was off nearly 6% despite a 22% jump in quarterly profits. The world’s largest maker of tractors cautioned that rising raw material costs could crimp operations the rest of 2008, which sparked the pullback in shares overnight. On the plus side, Freddie Mac (NYSE:FRE) shares rallied about 4% even though the residential mortgage provider lost $151 million for the quarter, but the loss was not as bad as the Street forecast.

Crude oil futures edged lower in overseas trading when an Iranian official said that there were no plans to cut exports. Still, even with the pullback crude oil was hovering above $125 dollars a barrel. The greenback was also firm overnight, rising slightly versus the euro, and about 0.4% against the yen.

From a chart perspective, the Russell is at the highest level since early January, which puts intense equity pressure on losing shorts heading toward options expirations. The market is a tad overbought on daily momentum readings, which could stall upside progress. The next resistance zone comes in at 743; conversely, support is pegged for today at 731, then at 726.