1-26-16 – Where is the market going?

Stocks opened higher and are holding gains into midday Tuesday. The S&P 500 is up 20.45 points to 1897.25 and a few points from session highs.

Earnings news is helping the rebound attempt, with large cap names like Procter & Gamble (PG), 3M (MMM), and Corning (GLW) seeing gains on better-than-expected results.

The Energy (XLE) sector is pacing the advance as well after crude gained nearly $1 to $31.30. Telecomm (IYZ), Basic Materials (XLB), and Industrials (XLI) are seeing relative strength as well.

Gold added another $12.5 to $1118 and has gained nearly $30 in the past week.

CBOE Volatility Index (.VIX) is off 1.10 to 23.05 amid a second day of rather light volumes in the options market. Roughly 3.1 million calls and 2.5 million puts traded across the exchanges. Projected volume for the day is 13 million and 20% below the one-month average. Just 12 million contracts changed hands Monday.

Apple (AAPL) Weekly 90 puts are the most actives today. 53,000 contracts traded so far ahead of the company’s earnings, due after the closing bell. SPDR 500 Trust (SPY) Weekly 190 puts, SPDR Financial (XLF) Apr 21 calls, and Citi (C) Mar 4th Weekly 44 calls are among the most active options today as well.

Looking forward, the tone of trading is likely to take a wait-and-see feel heading into the Federal Reserve’s policy statement Wednesday afternoon. Indeed, Treasury bonds are in a narrow range today and the yield on the benchmark ten-year remains pinned near 2%.

Given the recent volatility in the equities market, expectations are building that officials might signal a more dovish stance at the conclusion of this week’s meeting. That, in turn, could set the table for disappointment if they stick to the previous rate-hike script.

Meanwhile, China’s Shanghai Composite remains volatile after losing 6.4% overnight. Crude oil is ticking higher today, but the move comes after big losses suffered the day before, which sent the energy component of the S&P 500 down nearly 5%. The fourth quarter earnings reporting season is still in the early stages, with the largest company by market value due to report after the closing bell today. Apple is down 1% ahead of its highly-anticipated results.

Suffice it to say, there is plenty of event risk looming and the result is likely to be choppy trading and additional volatility through the FOMC announcement.

On the technical front, the mid-week turnaround on Wednesday and the break of resistance of 1,860 on the S&P 500 is bullish. The index has also retraced 68.6% of yesterday’s loss. Today’s high of 1900.91 coincides with the 1900 resistance area and a break of that level midweek sets up the potential for another leg higher, with 1920 offering the next area resistance. There is major support at the 1875 area, which coincides with Friday-Monday range lows.

The breakout move after tomorrow’s FOMC meeting could set the table for the market’s next short-term direction, but crude oil remains the wild card as it is driving significant moves in the energy-related components of the S&P 500.