12-29-15 – Where is the market going?

Bolstered by gains in foreign markets, stocks on Wall Street opened broadly higher and are extending the gains into midday trading Tuesday. After dropping 4.5 points yesterday, the S&P 500 is up 18.70 points to 2075.2 and near session highs. Economic news added to holiday cheers as Consumer Confidence was up to a better-than-expected 96.5 in December and Case Shiller 20-City Index of home prices showed an uptick of 5.5%, also above expectations.

Treasury bonds are seeing notable weakness on the stronger-than-expected data and as equities rally. The yield on the benchmark ten-year Treasury is ticking up to 2.27%. Crude oil gained 95 cents to $37.76 ahead of weekly inventory data tomorrow. Gold is flat at $1067.50.

CBOE Volatility Index (VIX) is off .97 to 16.04 and overall trading volumes in the options market are picking up from the slow pace seen Monday. Roughly 2.1M calls and 1.7M puts traded in the first 90 minutes. Nevertheless, many trading desks are operating with skeleton crews and projected volume for the day is less than 11M contracts, which is 25% below than the one-month daily average. SPDR 500 Trust (SPY) Dec Quarterly 207 calls, US Oil Fund (USO) Jan 17 calls, and VIX Jan 26 calls are the most active options so far Tuesday.

Energy (XLE), this year’s worst performing sector, is lagging despite the uptick in crude oil. Healthcare (XLV), Tech (XLK), and Consumer Discretionary (XLY) are leading the advance. Midcaps (MID) are keeping pace with large caps, but the Russell 2000 Small Cap Index (RUT) is lagging behind a bit.

The best performing sectors in 2015 are Consumer (XLY), Healthcare (XLV), and Tech (XLK) and those are the top performers today, as they are the mostly likely candidates to see additional institutional flows if the rally continues into early-2016. Energy (XLE), Basic Materials (XLB), Industrials (XLI), and Utilities (XLU) have been the notable laggards this year and are trailing the S&P 500 again today as well.

Only two trading sessions remain for 2015 after today and, given this year’s mixed trading across various market sectors, the S&P 500 is up less than 20 points YTD. It successfully tested both its 50 day and 200-day moving averages yesterday and now facing mid-December resistance levels near 2076.

Looking forward, the economic and corporate earnings calendars are light into the New Year exchange holiday and the equities market remains in the seasonally strong period known as the “Santa Claus Rally”. Volumes are very light, however, and expect thin and whippy trading amid end-of-year position squaring between now and Friday. Then pages turn to 2016 and, if the longer-term pattern holds, expect mixed trading to continue into the fourth quarter reporting season beginning mid-January.