1-7-16 – Where is the market going?

The bearish funk continues as the S&P 500 falls for a fifth time in six days. Weakness across overseas equities markets again set the table for morning losses on Wall Street Thursday and, despite a modest morning rebound attempt, the S&P is down 24.40 to 1965.86.

Unlike prior trading sessions, Treasury bonds are not seeing the typical safe haven move, as key jobs data are due out tomorrow morning. The yield on the benchmark ten-year Treasury ticked up to 2.18% from 2.15% earlier in the day.

Crude oil is attempting to recover lost ground after falling to multi-year lows of almost $32 per barrel and was recently down 25 cents to $33.75. On the other hand, gold continues to build on recent gains and is up another $14 to $1106.

On Wall Street, every market sector is in the red again today, being led lower by Financials (XLF), Industrials (XLI), and Basic Material (XLB) names.

CBOE Volatility Index (VIX) is up 2.81 and near session highs at 23.40. Trading is active with roughly 5.2M calls and 5.9M puts. Projected volume of 21.4M for the day is the most seen so far in 2016. VIX Jan 17 puts, SPDR 500 Trust (SPY) February 183 puts, and iShares China Fund (FXI) Jan 34 calls are the most actives of the day.

The S&P 500 has now lost 5.4% in a little more than a week. While market watchers are quick to point the finger of blame at China or falling crude oil, some pre-earnings jitters are driving heightened volatility as well. Alcoa (AA) unofficially kicks off the earnings reporting season on Monday and the floodgates on fourth quarter earnings open the following week.

According to Zack’s, “the current Q4 growth expectations are the weakest of any other recent period at this comparable stage.” Overall results are expected to be down 7.3% from a year ago on a 4.6% drop in revenues.

Obviously, as energy prices fall, the trend will continue to weigh on the earnings within that sector. However, the trend also bodes well for other market sectors like airlines and consumer names. Note, for instance, that SPDR Retail Trust (XRT) is higher today in the wake of generally upbeat same store sales numbers.

The decline in crude oil and circuit breakers in China are certainly adding to the angst. The trend bodes well for Treasury bonds and gold in the near-term. As the earnings unfold, however, the equities market is likely to stabilize as some sectors show results that surpass expectations. The bar is being set very low. Until then, look for the underlying tone of trading to remain cautious from now through the early earnings reports, and into the FOMC rate announcement on January 27th.

Technicals suggest that several key support areas have given way and the 2000 psyche support level is likely to be a resistance area for the S&P 500 in the near-term. An ominous 50-day and 200-day moving average cross over is visible on the daily chart as well. Look for support around today’s lows around 1950-1955. Beyond that, next support lies around 1930-1935 and there’s not much beyond that until a break of the 1900 level. So far, there is no sign of panic or a capitulation type trading day, as VIX and overall volumes remain well below the extreme levels seen in late-August.