1-5-16 – Where is the market going?

Trading turned mixed Tuesday morning after the brutal sell-off the day before. The S&P 500 is off 1.30 points to 2011.36 heading into midday, but up nearly 22 points from the intraday low Monday.

Still, the underlying tone remains cautious ahead of jobs data later this week and after global equities markets were rattled to start the New Year. ADP offers the first peek at December jobs tomorrow morning and the Labor Department releases its monthly payroll report Friday morning. Economists expect the report to show a gain of 200K jobs for the last month of 2015, which is in-line with the reading from November.

Treasury bonds are holding most of yesterday’s gains ahead of the data and the yield on the benchmark ten-year Treasury is at 2.24%, from a high of 2.35% just a week ago.

Crude oil still can’t muster any gains despite mounting tensions in the Middle East and is down 37c to $36.39. Gold is attempting to add to yesterday’s safe haven bid and gained another $2 to $1077.

On Wall Street, seven of ten market sectors are in the red, being led lower by Consumer Discretionary (XLY), Energy (XLE), and Basic Material (XLB) names. Healthcare (XLV) and Consumer Staples (XLP) are seeing relative strength.

CBOE Volatility Index (VIX) is holding recent gains as risk perceptions remain somewhat elevated. The market’s “fear gauge” is flat at 20.70 after a three-day 28.7% spike. However, options volumes remain lackluster. A total of 2.6M calls and 2.4M puts traded across the exchanges. Projected volume for the day is 13M and about 15% below the average levels seen in December. There is hardly any sign of panic in the options market.

iShares Large Cap Fund (IWM) Jan 37 calls, SPDR 500 Trust (SPY) February 150 puts, and US Oil Fund (USO) Feb 9.5 puts are the most actives.

Looking forward, the earnings reporting season unofficially kicks off next Monday with a report from Alcoa (AA), but the floodgates on fourth quarter reports don’t open until later in the week when the big financials begin releasing results. Expect the pre-earnings “jitters” to keep a lid on rally attempt in the equities markets, as the overall results are expected to paint a lackluster picture for overall profit growth in 2016.

And the pace of earnings reports ramps up meaningful in the final week of the month and, consequently, the January 27 Federal Reserve rate meeting takes place during the peak of the reporting period. Given the global sell-off in equities yesterday, including big losses in China and Germany, and persistent weakness in crude oil, there are plenty of reasons why investor anxiety levels will remain elevated this month heading into the FOMC’s next rate announcement.

Some had hoped that yesterday’s afternoon rebound off intraday lows might set the table for a “Turnaround Tuesday”, but the S&P 500 remains mired in the red at midday. Today’s intraday low of 2006.96 for the S&P 500 is within striking distance of the “psych” support at 2000. A move below that and look for a test of Monday’s multi-month low of 1989.68. Plenty of upside resistance, including at the 50 and 200 day moving averages, currently around the 2050 level.