Mild opening dip projected despite strong dollar

Kevin Pendley | Aug 26, 2008 9:06am EDT | Comment

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Small-cap stocks are expected to open slightly lower, pulled down by a soft tone in equities around the world and by ongoing jitters about financial stocks. Those concerns should be countered, however, by a steep gain in the U.S. dollar and lower crude oil prices. The Russell 2000 (NYSE:IWM) was down about 0.1% overnight, which would suggest an open near 719.50.

Stock markets around the world were mostly lower overnight, with Europe off about 0.5% following dreadful German data. Japan was down 0.7%, Hong Kong off 0.2%, China down 2.8%, Taiwan down 0.9%, Singapore down 0.9% and South Korea down 0.8%. Bank stocks, oil shares and mining stocks were soft in European trading and that pattern could flow into U.S. action this morning.

The U.S. dollar was on a roll heading into the stock market opening, charging to six-month highs against the euro, rising more than 1% in the process. The greenback was also up versus the yen, gaining about 0.4%. The strong dollar took a toll on commodities overnight, with crude oil slipping below $114 a barrel and gold tumbling. Looking ahead today, grains markets are expected to open solidly lower, so the commodity inflation story is upbeat for stock market investors to start the day.

Barring a dramatic move in crude oil, the big story today is expected to come on the data front, with reports on housing and consumer confidence being unveiled at 10:00 a.m. ET.

Large-cap stocks in the news overnight included General Motors Corp. (NYSE:GM), which gained about 1.2% on reports that Middle East investors may be interested in buying the Hummer brand, which GM is shopping for a buyer as the carmaker retools its image and auto portfolio away from the truck and SUV bias.

Also, JP Morgan Chase and Co. (NYSE:JPM) said that steep declines in government-sponsored enterprises (GSEs) could slice into profits, just another headache for the financial arena to deal with. JPM shares were off about 0.4% in overnight trading. Electronic Arts Inc. (Nasdaq:ERTS) was down about 2% on talk that the firm was looking at a possible competitive acquisition. On the upside, BigLots Inc. (NYSE:BIG) was on the rise in after-hours trading, as the discounter beat the earnings estimate and raised their yearly profit guidance.

Looking at the chart picture, Monday’s slide through key support at 726 was a troubling development for the bulls and fortified recent bearish patterns on daily and weekly studies. The market is hovering near the next logical support zone at 720.50, and persistent action below that point would open the door for a run toward the recent intraday bullish pattern lows near 711.50. There is support along the way today at 714.50. On the upside, resistance comes in at the aforementioned 726 line, then at 734.