Small-caps start out inauguration day in the red

Small-cap stocks pushed lower on the opening, pulled down by a familiar worry of late –sinking bank and financial shares. Additional selling was fueled by losses in overseas markets as the U.S. catches up with the world following Monday’s holiday. It should be noted that action today could be spotty and uneven with the nation’s attention on the inauguration of Barack Obama as the 44th President of the United States. At 9:47 a.m. ET, the Russell 2000 (NYSE:IWM) was down 12.62, or 2.71% at 453.83. Historically, the odds favor a losing day for stocks as the market slips about 70% of the time on inauguration day.

The banking arena has been back in the spotlight – in a very harsh light – for the past couple of weeks and remains a worry spot for the market following dreadful profit news from European banks and early declines for U.S. banks this morning.

During the U.S. holiday Monday, the Royal Bank of Scotland said they would report an annual loss of some $41 billion dollars for 2008, which would stand as the biggest loss ever in UK corporate history. The woes for UK bank stocks sent the sterling currency to 7-year lows against the dollar.

Looking at big U.S. banks, Bank of America Corp. (NYSE:BAC) was off some 16% right after the open, while Wells Fargo & Co. (NYSE:WFC) was down 11%. Citigroup Inc. (NYSE:C) was down 5%, while JP Morgan Chase and Co. (NYSE:JPM) was down 9%. State Street Corp. (NYSE:STT) an institutional money manager, reported terrible results and tumbled 52% on the open.

Crude oil prices were lower overnight, but relatively flat into the stock market open. That said, a strong tone in the U.S. dollar could weigh on commodity prices today and therefore on commodity-themed stocks. The greenback was up about 1% versus the euro; in early commodities trade, cotton and cocoa were taking a big hit.

Taking a peek on options activity from Friday’s January options expirations, Scott Fullman, director of derivatives investment strategy with WJB Capital Group said that unusual activity was seen for small-cap firms UDR Inc. (NYSE:UDR), GTx Inc. (Nasdaq:GTXI) and TiVo Inc. (Nasdaq:TIVO), so it could be interesting to keep tabs on those firms for a couple of weeks to see if they have any news developments.

The chart structure for small-caps remains in an elongated sideways consolidation mode. The rollover last week off logical resistance might have been troubling for short-term traders, but was consistent with the dominant sideways theme. The key early this week will be whether or not the market can hold up against 453 support. If so, then there is a modest chart bias to resume the upward path to retest last week’s failed resistance lines. However, a breach of 453 opens the door to an abrupt slide back to 442-439. Below there, the market really doesn’t have a safety net until 416.

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