Lower open seen on crude pop, credit worries

Kevin Pendley | Aug 25, 2008 8:57am EDT | Comment

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Small-cap stocks are expected to open slightly lower, pulled down by an overnight bounce in crude oil prices and by lingering concerns over the credit crisis. The Russell 2000 (NYSE:IWM) was down about 0.3% in after-hours trading, which would suggest a regular open near 735.40.

Many traders are looking for a choppy trading week, with heightened volatility amid lighter volume as the vacation season is still at a high level. Speaking of time away, U.K. markets were on holiday today, which could reduce morning volume in U.S. asset trading. In other action overseas, Asian markets posted solid gains, with Hong Kong up 3.5%, Japan up 1.6%, Taiwan up 1.7% and Australia up 1.6%.

The U.S. dollar was mixed overnight, up slightly against the euro, but down against the yen and continued to erode moving closer to the opening. Traders will likely keep an eye on the greenback for signals on commodities and on money flow into equities. In addition, the existing home sales report comes out at 10:00 a.m. ET and could influence morning trading direction.

Stocks to watch this morning include Wal-Mart Stores Inc. (NYSE:WMT), which was down slightly overnight in response to the bump in crude oil. Also, Lehman Brothers Holdings Inc. (NYSE:LEH) took a hit overnight as concerns were registered about a Korean state-run bank buying the firm. CF Industries Holdings Inc. (NYSE:CF) stands to rally as the firm will replace Electronic Data Systems (NYSE:EDS) in the S&P 500 Index, and FirstEnergy Corp. (NYSE:FE) could get a lift from a bullish article in Barron’s over the weekend.

Even though the Russell generated a nice recovery rally Friday, the chart picture is still dominated by the potential double top on weekly charts from the June and August peaks. If the market can retest those recent highs, or even push above 750, then it would heighten the chance to break through that troubling formation. From a short-term standpoint, there is a line right near 737 that stands as important swing point today. Above there, resistance is at 742 and 748. On the downside, support is at 729, 726 and 720.50.