3-10-16 – Where is the market going?

Stocks opened higher, but gave back the early gains and are under water into midday Thursday. The S&P 500 is down 10 points to 1979.26 and less than three points from session lows.

S&P futures moved higher before the opening bell after, as expected, the European Central Bank announced interest rate cuts. The ECB also announced a larger-than-expected expansion to its asset purchase program and the headlines triggered a modest rally across European equities markets.

However, the ECB announcement was largely baked into the cake and a decline in crude oil prices is weighing on the energy sector. Crude oil is off 72c to $37.57 after a Reuters report suggested that a March 20 meeting between major oil producers to freeze production is now “unlikely to take place.”

Meanwhile, the dollar is under pressure and gold is up $10 to $1276.50.

Treasury bonds saw whippy trading around the ECB announcement and are now down sharply. The yield on the benchmark ten-year is at one-month highs of 1.93%.

On Wall Street, eight of ten market sectors are lower, with Energy (XLE), Telecomm (IYZ), and Technology (XLK) sporting the biggest losses. Healthcare (XLV) and Basic Materials (XLB) are modestly higher.

CBOE Volatility Index (.VIX) is up .37 to 18.71 and options volumes are picking up from a very slow pace seen Wednesday. Roughly 3.3 million calls and 3.2 million puts traded across the exchanges through the first two hours. Still, projected volume for the day is 15.3 million contracts and 5% less than the one-month daily average.

The five most active contracts are weekly options on the SPDR 500 ETF (SPY) that expire tomorrow. Specifically, 201 calls, 199 puts, 200 calls, 200 puts, and 200.5 calls on SPY are seeing the most volume so far.

Looking forward, the earnings calendar is light over the next few weeks and there is no economic data of significance until reports on Retail Sales and inflation (PPI) on Tuesday. Crude oil remains a key driver for the energy sector and the broader market, but the moves in the commodities markets are likely to take a backseat to interest rate jitters next week.

Indeed, Treasury bond yields are grinding higher into the March 16th FOMC announcement. While the ECB has deployed all means necessary on the monetary front, Fed officials are likely to signal a much less accommodative stance. Interesting, the chart of the ten-year yield (TNX) shows it reaching a 50-day moving average after today’s move.

While crude oil remains a wild card, further weakness in Treasuries (higher yields) will likely thwart any meaningful rally attempts in the equities market into the March 16th FOMC meeting.

The S&P 500 is up almost 9% in the past month and therefore today’s weakness is certainly understandable. On the technical front, Monday’s close of 2001.76 is a resistance level and represents at 61.6% retracement of the losses suffered from November 3rd through February 10th. More immediate resistance awaits at 1990. Today’s low of 1976 is support, followed by 1970. Beyond that, there’s not much until 1950 and then back down to the 50-day moving average.