Steep opening slide seen with global stock rout

Kevin Pendley | Oct 22, 2008 8:44am EDT | Comment

Rating: Unrated [rate it]

Small-cap stocks are expected to open sharply lower, pressured by a global rout in equities overnight and concerns that a recession in the United States will hurt corporate profits moving forward. The Russell 2000 (NYSE:IWM) was off about 2% in pre-market trading, which would suggest an open near 520.50.

Overnight action in stock index futures has already been wildly volatile. Shortly after the regular close Tuesday afternoon, derivatives on the S&P 500 and Nasdaq 100 shot higher on strong earnings from Apple Inc. (Nasdaq:AAPL) and Yahoo! Inc. (Nasdaq:YHOO), but the enthusiasm disappeared overnight amid dreadful losses from Wachovia Corp. (NYSE:WB) which set a dubious record by generating a $23.9 billion quarterly loss — the largest yet for a bank during this ongoing credit crisis. McDonald’s Corp. (NYSE:MCD) beat the forecast and was up 3% in pre-market trading.

Outside of the earnings flood, SanDisk Corp. (Nasdaq:SNDK) tumbled some 25% in after-hours trading after Samsung Electronics Co. Ltd. withdrew a $5.9 billion bid for the flash memory card maker. SNDK was still off some 21% in pre-market trading this morning.

Around the globe, stocks in Europe were off some 4% heading toward the U.S. opening. In Asia, Japan’s Nikkei was down 6.8%; Singapore was down 5.2% to fresh four-year lows, Bangkok off 3%, Manila down 1.1%, Jakarta down 4.1%, Kuala Lumpur down 1.5% and Ho Chi Minh off 1.3% and India down 4.8%.

The global commodities slide that helped fuel declines Tuesday was still in the air today, with crude oil prices tumbling more than $3 a barrel heading toward the open amid fears about demand as worldwide economic conditions deteriorate. Earlier this morning, the MBA Mortgage Application Index fell sharply, sinking 16.6% to the lowest point in nearly eight years, which underscores ongoing troubles in the housing market.

There are no major economic reports or speakers on tap the rest of today, which means the market will be free to react to various earnings news, ponder the economy and trade off chart factors.

Looking at the chart picture, the Russell appears set to open through short-term support at 525. Below there, support comes in at near 514, then there is very little support of note until we approach critical support at the 500 “figure” line. Decisive action below 500 would suggest that recent upside action was corrective in nature and that the bottom needs to be retested. If the market can overcome the steep opening decline, look for resistance at 538, then up at 550.