Higher opening seen in small caps

Kevin Pendley | Aug 22, 2008 8:49am EDT | Comment

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Small-cap stocks are expected to open solidly higher, boosted by a recovery in the U.S. dollar, a pullback in crude oil prices and gains in European stocks. The Russell 2000 (NYSE:IWM) was up about 0.7% in overnight trading, which would suggest a regular open near 730.00.

Stock index futures and the U.S. dollar found additional strength this morning on comments from billionaire investor Warren Buffett, who said in an interview on CNBC that stocks are “more attractive” than they were a year ago and that he has no current investments against the U.S. dollar. The market found comfort in Buffett’s comments, especially heading toward a speech later this morning from Federal Reserve Chairman Ben Bernanke on financial stability. Bernanke’s comments are expected to come out at 10:00 a.m. ET.

Crude oil prices shot through the roof Thursday, but were in corrective mode overnight, slipping about $1 dollar a barrel back toward the $120 zone. Price action in crude has been wickedly volatile this week, whipsawing equities as energy traders try to evaluate heightened tensions between the United States and Russia, and storm patterns in the Gulf of Mexico.

The dollar took a tumble Thursday, but was back on a roll this morning, climbing 1.2% against the yen and 0.6% versus the euro. The buck also was climbing against the pound sterling following dreary growth data out of the UK this morning.

Equity markets around the world were mixed overnight, with Europe trading solidly higher into the U.S. open, while Asia shares were mixed. China was down 1.1% and Japan was off 0.7%, but most of the South East Asian indices were in higher territory, with Malaysia up 1.3%, Indonesia up 1.5% and Thailand up 0.7%.

The projected opening bounce should brighten the chart structure in small-caps. It will be important for the market to hold above 726 today and fortify that zone as support. Resistance for today comes in at 734, 737 and 742. If the market does start to falter, then support is at 726, then at 720.50 and 711.