1-19-16 – Where is the market going?

Stocks opened broadly higher after the three-day weekend, but have pared some of the gains heading into midday Tuesday. The S&P 500 is up 11.55 points to 1891.88 and roughly 10 points from session highs.

Treasury bonds are giving back some of the gains seen over the past two weeks and the yield on the benchmark ten-year Treasury is ticking up to 2.05% ahead of inflation (CPI) and housing data tomorrow.

Crude oil is off 35c to $30 and gold lost $4 to $1086.50.

Eight of ten market sectors on Wall Street are in the black, with Energy (XLE) and Basic Materials (XLB) being the notable exceptions.

CBOE Volatility Index (.VIX) is off 1 point to 26 and options volumes are running at a normal pace. Roughly 3.7 million calls and 3.1 million puts traded through the first two hours. SPDR 500 Trust (SPY) Weekly 201 puts, Feb 183 puts, and Weekly 181.5 puts are the most actives.

Tuesday’s early strength on Wall Street follows gains in overseas markets. China’s Shanghai jumped 3.2% on the heels of in-line reports on GDP and retail sales. Equities markets in Japan and Europe followed suit with modest gains of their own. France’s CAC Index paced the advance with a gain of 2%.

Yet, the underlying tone remains cautious after the S&P 500 Index’s 8% YTD drop and 52-week lows set Friday. Recent rallies have quickly faded and the market is now only beginning to enter a dismal fourth quarter earnings reporting period. According to Zack’s, analysts expect overall earnings to be down 7.8% from a year ago on 4.7% lower revenues.

In that respect, the mixed reaction to profit reports from Bank of America (BAC), Morgan Stanley (MS), United Healthcare (UNH), and Comerica (CMA) are not entirely encouraging. Yet, a flood or releases slated for the weeks ahead, including Dow components IBM after the closing bell today and Goldman Sachs (GS) tomorrow morning.

Given that the fourth quarter earnings reporting season is shaping up to be one of the worst in recent memory, some pre-earnings jitters are naturally affecting sentiment. Persistent weakness in crude and metals will likely to weigh on energy and basic material names. The FOMC rate announcement on January 27th is creating an overhang over the equities market as well.

The question is whether or not today’s gains will stick after the many failed rally attempts last week. The answer seems more likely to be….no. Immediate resistance is evident at the 1900 level on the S&P 500 and it will likely take a move beyond the 1925 level to really attract interest of the bulls. Support sits at Friday’s closing low near 1880 and then the August lows of 1867. Beyond that, Friday’s intraday 52-week low of 1857.83 comes into play.