Opening slip seen on weak earnings, jobs data despite European rate cuts
Small-cap stocks are expected to open lower, pulled down by profit worries and slumping economic conditions despite aggressive rate cuts overnight in England and the Eurozone. Stock index futures were showing even deeper losses for tech stocks following projections from bellwether Cisco Systems Inc. (Nasdaq:CSCO) that revenues would slump this quarter. Given overnight declines in futures and a weak report on jobless claims, a dip of 1.5% or more for the Russell 2000 (NYSE:IWM) seems likely, which would translate to an opening near 507.00.
The weekly claims report came in at 481,000, which was worse than the forecast of 475,000, particularly with last week’s figure revised upward to 485,000. The productivity report also came out this morning, but was basically in line with the forecast and had little impact on the market. The most numbing stat from this morning’s data was that the number of continuing claims rose 122,000 last week to 3.84 million, the highest level in more than 25 years.
The Bank of England stunned the market with a very aggressive rate cut of 150 basis points, pushing benchmark rates there to the lowest point in 53 years. In addition, the European Central Bank cut rates by 50 basis points and even the Swiss National Bank cut rates overnight. Central bankers around the world have been lowering rates in recent weeks in an attempt to stave of slowing economic conditions, but this latest batch of cuts from Europe only had a fleeting upside impact on U.S. stock index futures.
In company news overnight, the tone for a weak start was triggered by Cisco; even though the firm topped the forecast for the third quarter, they warned that revenues could slide hard in the current quarter and could post the first decline in five years. CSCO shares were down 6% at times overnight. Over in Europe, the world's No. 2 automaker — Toyota — tumbled 11% and European sporting goods company Adidas AG fell 9% after earnings numbers missed the forecast.
The chart picture for the Russell stalled Wednesday at logical resistance in the 550 zone and retreated back to important short-term support at 514.50. However, that support line is likely to be seriously violated on the opening, and there is very little convincing support now until we get close to the “figure” point at 500 (there is some mild intraday support around the 507 line as you can see on the chart). If the market can mount a recovery move later this morning, then resistance will be at 525, then at 534.50.
The weekly claims report came in at 481,000, which was worse than the forecast of 475,000, particularly with last week’s figure revised upward to 485,000. The productivity report also came out this morning, but was basically in line with the forecast and had little impact on the market. The most numbing stat from this morning’s data was that the number of continuing claims rose 122,000 last week to 3.84 million, the highest level in more than 25 years.
The Bank of England stunned the market with a very aggressive rate cut of 150 basis points, pushing benchmark rates there to the lowest point in 53 years. In addition, the European Central Bank cut rates by 50 basis points and even the Swiss National Bank cut rates overnight. Central bankers around the world have been lowering rates in recent weeks in an attempt to stave of slowing economic conditions, but this latest batch of cuts from Europe only had a fleeting upside impact on U.S. stock index futures.
In company news overnight, the tone for a weak start was triggered by Cisco; even though the firm topped the forecast for the third quarter, they warned that revenues could slide hard in the current quarter and could post the first decline in five years. CSCO shares were down 6% at times overnight. Over in Europe, the world's No. 2 automaker — Toyota — tumbled 11% and European sporting goods company Adidas AG fell 9% after earnings numbers missed the forecast.
The chart picture for the Russell stalled Wednesday at logical resistance in the 550 zone and retreated back to important short-term support at 514.50. However, that support line is likely to be seriously violated on the opening, and there is very little convincing support now until we get close to the “figure” point at 500 (there is some mild intraday support around the 507 line as you can see on the chart). If the market can mount a recovery move later this morning, then resistance will be at 525, then at 534.50.
About the Author
Kevin Pendley covers the Russell 2000 index for SmallCapInvestor.com and writes a weekly technical analysis column.
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