Modest bounce after Monday rout; watching auto news

Kevin Pendley | Dec 02, 2008 10:21am EST | Comment

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Small-cap stocks jumped higher on the opening, a welcome sign after the Russell 2000 (NYSE:IWM) suffered the largest one-day loss of the year on Monday. Buying interest was stirred by optimism for a bail-out of beleaguered U.S. automakers, anticipation for another round of global rate cuts and just a plain old oversold bounce after Mondays’s rout. At 9:57 a.m. ET, the Russell 2000 was up 5.14, or 1.23%, at 422.21.

Investor eyes will be on our nation’s capital today as auto industry executives gather in Washington with hands held out begging for a rescue package to avert potential failure. In a turnabout from last month’s embarrassment when the executives showed up on their chartered jets asking for taxpayer money, this time around the top dog at General Motors Corp. (NYSE:GM) said he was willing to work for just $1. CEOs from the Big 3 also were either flying commercial or driving to Capital Hill. The general perception is that after some browbeating, lawmakers will come up with an aid package for automakers in the $25 billion range. Shortly after the open, GM stock was up 6%, while Ford was up 5%.

Today’s meetings in Washington will coincide with monthly figures for vehicle sales, which are expected to be among the worst in a quarter-century. Overnight, news on the auto front was bad around the world, with new vehicle registrations in Germany down 17% for the month of November and down 28% in South Africa. Toyota and Tata (India’s top carmaker) announced plans to slash annual production to avoid building up inventory of unsold vehicles.

Financial shares were in bounce mode this morning after getting absolutely hammered Monday. Investors were hopeful for another round of global rate cuts to stimulate the world out of recession. The Reserve Bank of Australia slashed 100 basis points off their benchmark rate last night, which was much more aggressive than expected. In addition, the Bank of Japan expanded lending, and rate cuts are expected out of the United Kingdom, eurozone and New Zealand soon, and out of Sweden on Wednesday. The Financial Select Sector SPDR was up 1.6% early on, and Citigroup Inc. (NYSE:C) climbed 7.4%.

Commodity markets stabilized this morning, which was a big relief after crude oil collapsed 9% Monday and commodity stocks were beaten down on news that new orders in China were down and the U.S. manufacturing sector tumbled to two-decade lows. On the open, crude oil prices were up about $0.40 a barrel, and energy stocks were up about 2.4%.

Johnson-Redbook released data on U.S. chain store sales this morning for the week ended Nov. 29, which includes the key Black Friday kick-off of the holiday shopping season. Sales were actually down 0.4% on a year-over-year basis for the week, and were down 0.9% in November from last year, while off 1.1% from October. The numbers from the Redbook report seem much more on target than some of the initial glowing reports that were circulating about Black Friday traffic.

“Reports on Black Friday — the day after Thanksgiving and the kickoff of the holiday shopping season — have been mixed,” Goldman Sachs analysts said in a research report this morning. “For instance, the National Retail Federation reported traffic of 172 million shoppers over the weekend, up from 147 million shoppers in 2007. Indeed, their headline was that the holiday shopping season was “off to an energetic start.” However, anecdotal reports were less upbeat, as consumers generally noted more breathing room at the mall, and fairly light crowds later in the day.”

Goldman said that they would caution against putting too much weight on early shopping anecdotal reports. After all, they noted that “the fundamentals of the economy, which are extremely weak, are likely to be a much better predictor of how the holiday shopping season turns out than data on a single day, however hyped that day may be.” Goldman also said that “shoppers are not sales” that “sales are not profits” and that “one day is not the holiday season.”

Individual small caps on the move this morning included Palm Inc. (Nasdaq:PALM), which tumbled 34% as the smart phone maker lowered quarterly projections. Tessera Technologies Inc. (Nasdaq:TSRA), which gapped lower and lost some 43% on news that the firm lost a patent-infringement court ruling against other wireless phone chip makers. XenoPort Inc. (Nasdaq:XNPT) tumbled 34% after a failed trial for its reflux drug. Skyworks Solutions Inc. (Nasdaq:SWKS), gapped lower and slumped 13% after the analog semiconductor firm lowered guidance. On the upside, small financial firms dominated the gainers. Outside of financial ties, Clinical Data Inc. (Nasdaq:CLDA) rose 11% as the biotech company bounce off Monday’s severe decline amid a dearth of fresh news. Medicis Pharmaceutical Corp. (NYSE:MRX), gapped higher and was up about 17% as the skin treatment firm resolved a patent dispute to license a generic version of it’s acne drug. Wright Express Corp. (NYSE:WXS) rose 13% as the payment processing firm basically recovered Monday’s big slide.

Looking at the chart picture, resistance today comes in at 433.50, then at 442 and 452.50. On the downside, support is at 413.50, then at 406.50. Federal Reserve Bank of Philadelphia President Charles Plosser is slated to speak about the economic outlook today at 12:30 ET.