Mild opening gain on firm buck, overseas gains

Kevin Pendley | Aug 20, 2008 8:53am EDT | Comment

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Small-cap stocks are expected to open higher, bolstered by solid earnings from tech bellwether Hewlett-Packard Co. (NYSE:HPQ), a strong U.S. dollar and gains in overseas stock markets. The Russell 2000 (NYSE:IWM) was up about 0.3% overnight, which would suggest an opening near 732. It’s worth noting that stock index derivatives were retreating off the highs moving closer to the opening, so perhaps some hangover from two days of steep losses was still in the air.

HPQ, the largest computer maker on the planet, topped the Street estimate for quarterly earnings and climbed more than 3%, allowing investors to set aside concerns about the credit crisis and troubling economic data — especially on a day in which there are no major economic releases to muddy the water. Speaking of minor economic reports, this morning’s Mortgage Applications Index slipped to the lowest point since 2000 as a dip in mortgage interest rates did not attract renewed purchases or refinancing.

The U.S. dollar was on a roll in Asian and European trading time frames, gaining about 0.3% against the euro and against the yen, which suggests some confidence in the U.S. economy and dollar-tied assets.

A rally in crude oil prices could toss cold water on any morning bounce, however, as crude was up about $1.50 dollars a barrel back near the $116 mark. While a rise in crude could support energy shares, the overall impact tends to be negative for the broad market. Grains markets were also expected to push higher today, which could provide a quick reminder of the recent inflation scares seen on consumer price and producer price reports.

In overseas trading, the big news was a steep rally in the Chinese stock market, which jumped some 7% as investors finally saw signals that the government would launch a stimulus package to bolster equities and spark a slowing economy.

The chart picture for small caps shows that the market halted the downdraft right on cue Tuesday near our key support point at 726. If that point holds up early today, then it would be a welcome sign for the bulls. A breach of 726 opens the door for a potential test of the intraday reversal down at 711 (with interim support at 720.50 along the way). On the upside today, look for resistance at 734 and 742.