Sharp opening bounce on hope for auto bailout
Small-cap stocks are expected to stage a corrective bounce on the opening after suffering the biggest loss of the year on Monday. Hope for an auto sector bailout, oversold conditions, and expectations for further rate cuts should counter gloomy worldwide economic conditions. Stock index futures were up about 1.5% in after-hours trade, which suggests a Russell 2000 (NYSE:IWM) opening near 423.25.
Auto industry executives will be back in Washington today to lobby for a bail-out package from lawmakers. Their visit for handouts will coincide with monthly vehicle sales, which are projected to be among the worst readings in a quarter-century. Hope for a package for carmakers stirred a rally in pre-market trading for General Motors Corp. (NYSE:GM), which was up 11%, and also for Ford Motor Co. (NYSE:F), which was up 6%.
Financial shares also were trying to bounce in overnight trading following Monday’s rout. Citigroup Inc. (NYSE:C) climbed ahead of the opening as the market hopes for another round of global rate cuts. On Monday, Federal Reserve Chairman Ben Bernanke acknowledged that traditional means of cutting rates are now limited, which some take as a sign that the Fed will utilize more exotic methods to impart downward pressure on rates.
Stock market activity around the world was mixed overnight, with European shares rising about 1% heading toward the U.S. open. Asian stocks took a big hit as they caught up with the manic slide in U.S. markets from Monday. The Reserve Bank of Australia cut interest rates last night by 100 basis points, which was a much bolder move than expected. In addition, the Bank of Japan expanded lending.
Monday’s collapse in small-cap stocks took some of the steam out of last week’s historic upside push. Short-term momentum readings are oversold after the big collapse Monday, and a higher move today will clear that out of the way. Resistance on a bounce comes in at 433.50, 442 and 452.50; support should be seen at 413.50 and 406.50.
Auto industry executives will be back in Washington today to lobby for a bail-out package from lawmakers. Their visit for handouts will coincide with monthly vehicle sales, which are projected to be among the worst readings in a quarter-century. Hope for a package for carmakers stirred a rally in pre-market trading for General Motors Corp. (NYSE:GM), which was up 11%, and also for Ford Motor Co. (NYSE:F), which was up 6%.
Financial shares also were trying to bounce in overnight trading following Monday’s rout. Citigroup Inc. (NYSE:C) climbed ahead of the opening as the market hopes for another round of global rate cuts. On Monday, Federal Reserve Chairman Ben Bernanke acknowledged that traditional means of cutting rates are now limited, which some take as a sign that the Fed will utilize more exotic methods to impart downward pressure on rates.
Stock market activity around the world was mixed overnight, with European shares rising about 1% heading toward the U.S. open. Asian stocks took a big hit as they caught up with the manic slide in U.S. markets from Monday. The Reserve Bank of Australia cut interest rates last night by 100 basis points, which was a much bolder move than expected. In addition, the Bank of Japan expanded lending.
Monday’s collapse in small-cap stocks took some of the steam out of last week’s historic upside push. Short-term momentum readings are oversold after the big collapse Monday, and a higher move today will clear that out of the way. Resistance on a bounce comes in at 433.50, 442 and 452.50; support should be seen at 413.50 and 406.50.
About the Author
Kevin Pendley covers the Russell 2000 index for SmallCapInvestor.com and writes a weekly technical analysis column.
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