Small caps enter choppy trade

Kevin Pendley | Jul 18, 2008 9:59am EDT | Comment

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Small-cap stocks slipped into the red shortly after the opening, pulled down by profit-taking ahead of the weekend from hot money traders who caught the bounce this week and by sloppy earnings in the tech arena. At 9:52 a.m. ET, the Russell 2000 (NYSE:IWM) was down 2.07, or 0.30%, at 694.56. There was a little tug of war early this morning between an upside push for financials versus a downside bias for tech stocks.

The primary upside catalyst this morning once again stemmed from the financial arena, with Citigroup Inc. (NYSE:C) shares climbing 10% on the open following a smaller-than-expected loss for the quarter. The rally in the largest U.S. bank follows on the heels of a jump in Wells Fargo & Co. (NYSE:WFC) on Wednesday and JP Morgan (NYSE:JPM) on Thursday. Even Freddie Mac (NYSE:FRE) managed to push into the green despite a Wall Street Journal story overnight saying the mortgage lender might opt to raise billions in cash.

Despite the rise in financials, techs were on the defensive early on, paced by losses in Google (Nasdaq:GOOG) and Microsoft (Nasdaq:MSFT), both of which reported earnings that disappointed investors.

In overnight trading, stock markets around the world were mixed, with Europe shares up into the U.S. open. Over in Asia, the direction was two-sided with Japan down 0.6%, Taiwan down 2.2%, Australia down 1.2% and Singapore down 0.5%. Meanwhile, China was up 3.5%, India up 4% and Hong Kong up 0.6%.

The U.S. dollar was on firm footing in overnight trading, but started to slice away those gains after stocks pulled into the red after the open. The dollar was clinging to a modest 0.2% gain against the euro, and was up 0.3% versus the yen, but was well off the best levels seen ahead of the open. A positive reaction to Citibank’s earnings appeared to provide a lift to the greenback, as dollar investment flows appeared to be watching equity moves even more than crude oil gyrations.

Crude oil prices rallied overnight ahead of the weekend, but pared back gains somewhat in front of the U.S. stock market opening. Crude prices have collapsed some 10% this week, providing some critical relief on the inflation front — and in fact, helping investors look past gloomy inflation reports on PPI and CPI earlier in the week. Still, crude oil prices could grab a bid ahead of the weekend after the steep decline and amid ongoing tension in the Middle East.

Broad market sectors on the rise this morning included leisure products, thrifts and mortgage finance firms, agriculture products, oil and gas drillers and oil exploration and production stocks. On the downside, Internet software services, systems software, internet retail and biotech stocks were all attracting sellers.

Small-cap stocks on the move included SemGroup Energy Partners LP (Nasdaq:SGLP) tumbled 40% on news that the firm’s parent company is experiencing liquidity problems and could need to raise capital or even reorganize under Chapter 11 bankruptcy. Entercom Communications Corp. (NYSE:ETM) was down about 10% and continues to hover near the recent lows, down more than 50% from the May highs. On the upside, Pinnacle Airlines Corp. (Nasdaq:PNCL) soared some 52% on news that the airline has reached an agreement with to continue as a connection carrier for Delta Airlines (NYSE:DAL).

Looking at the chart structure, today still appears to be an important session just to make sure that weekly studies remain on track to sustain the bullish reversal off move lows. From a short-term trading standpoint today, resistance comes in at 701, then at 707.50. There is a little resistance vacuum above the latter up toward 717.50. Meanwhile, on the downside, support is pegged at 690, with the key spot at 684.50.