Sharp opening slide seen after global stock drop overnight

Kevin Pendley | Oct 27, 2008 8:58am EDT | Comment

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Small-cap stocks are expected to take another tailspin on the opening today, pulled down by a global rout in equities overnight. The Russell 2000 (NYSE:IWM) was expected to open down some 2%, which would translate to a regular opening near 461.50, which would be an immediate retest of Friday’s bear market lows.

In overseas trading, stock markets were on fire sale, with Japan’s Nikkei sinking 6% to the lowest close since 1982, while Hong Kong’s Hang Seng index collapsed 12.7%, notching the largest one-day drop in nine years. Stock index products in Taiwan and Shanghai were off some 4%, while Shares in India were down nearly 4%. Heading toward the U.S. stock market opening, equities in Europe were off about 4%.

The U.S. dollar was on a roll this morning against the euro, rising some 1.3% to the highest point since April 2006. The strong dollar and fears of a global recession took a toll on commodities, with crude oil down more than $2 a barrel.

A story in The Wall Street Journal saying that loan defaults on financing for technology spending have risen dramatically could hurt technology stocks on the opening. In pre-market trading, tech bellwethers such as International Business Machines Corp. (NYSE:IBM) were off 3.7% and Cisco Systems Inc. (Nadsaq:CSCO) was down some 7%.

Looking at the chart picture, if the Russell quickly cascades through Friday’s low this morning, then it opens the door to another leg down. There is mild support at 458 and then at 450. A slide through the latter could find the market in a support “vacuum” all the way down toward 430. On the upside, if the market can right the ship this morning, resistance comes in at 480, then at 491.