Small caps extend Monday's slide

Kevin Pendley | Nov 11, 2008 10:10am EST | Comment

Rating: Unrated [rate it]

Small-cap stocks tumbled on the open, pulled down by spillover selling from a decline in overseas markets fueled by a weak tone in financial and commodity shares. At 10:00 a.m. ET, the Russell 2000 (NYSE:IWM) was down 11.42, or 2.32%, at 481.69.

Slumping energy and commodity values already took a toll on overseas equities heading toward this morning’s opening. Shares in emerging market countries that are heavily dependent on energy exports — such as Russia and Dubai — were down as much as 9% overnight. Around the world, stock were off 3% in Japan, Hong Kong was down 4.7%, China off 1.1%, Taiwan down 2.1%, Australia off 3.5%, Singapore down 4.1%, South Korea off 2.1% and India down a whopping 6.6%.

As for the crude oil, the market for black gold was down about $2 a barrel into the U.S. stock market opening and briefly printed below $60. Copper, which is considered a key economic indicator, slipped 3% in London and aluminum producer and Dow component Alcoa Inc. (NYSE:AA) said that they were slashing output in this difficult demand environment.

This morning’s soft tone on commodities certainly is a quick turnabout from Monday morning, when commodity markets were in rally mode in Asia and Europe. If you’re wondering why Monday’s “great news” rally out of Asia on China’s announcement to implement a $586 billion stimulus plan, Northern Trust’s James Pressler penned a great piece on the news, questioning how much of the plan was actually “new” stimulus and just how the money to pay for the plan would be raised.

“Given the vagaries of how much real spending was in yesterday’s announcement, we are hesitant to significantly modify China’s growth forecasts upward or downplay the many risks facing the country’s struggling export economy and encumbered financial system,” Pressler said in an email. “However, we do feel that the uncertainties regarding how China will pay this bill will haunt global markets. If Beijing simply issues 4 trillion (yuan) in debt to cover its tab, then the long-term impact would be a manageable domestic issue. However, if it considers liquidating any of its many U.S.-backed assets or no longer buying as much of our debt, this New Deal would be a bad deal for the United States,” he said.

Large caps making news this morning include Starbucks Corp. (Nasdaq:SBUX), which missed the earnings forecast and was down 3.6% shortly after the open. Also, American Express Co. (NYSE:AXP) was granted bank holding company status and was down 4.1% early. Analysts at Goldman Sachs downgraded life insurers, which tugged down European insurers overnight and could weigh on insurance firms here today. American International Group (NYSE:AIG) was off 6.5% early, but it doesn’t take much of a move to sway a $2 stock.

Individual small caps of note this morning included Sangamo BioSciences Inc. (Nasdaq:SGMO), which was down 61% on news that a nerve drug it’s developing failed a mid-stage trial. Taleo Corp. (Nasdaq:TLEO) was down 34% on news that the firm was delaying filing of quarterly public documents. Browne & Co. Inc. (NYSE:BNE) was off 36% as the marketing communication company took a hit after reporting earnings. Bucking the early downdraft, Optimer Pharmaceuticals Inc. (Nasdaq:OPTR) gapped higher and surged 73% on news that its experimental anti-infective drug met late-stage trial goals.

Although stock market trading and futures markets will be open in America today, cash bond trading, banks and government offices will be closed for the Veteran’s Day holiday, which could thin out trade in equities.

From a technical analysis standpoint, the Russell has been slicing through minor support points like a hot knife through butter ever since the market failed at our resistance zone Monday near 514.50. The late breach Monday of 495 represented the best short-term spot and there wasn’t much of a fight there either. There is mild support around 480 and 475, then a better test down at 462. If the market is going to forge an inverted head-and-shoulders bottom, then is the timing and the price zone to get it done. If not, then a hard retest of the move lows is likely.