3-15-16 – Where is the market going?

Stocks are broadly lower amid broader weakness in global equities markets and a drop in crude oil prices Tuesday. After two hours of trading, the S&P 500 is down nearly 10 points to 2010 and 5 points from session lows.

Modest declines across most of Asia and Europe’s equities markets set the table for morning losses on Wall Street. Meanwhile, crude oil is down 90 cents to $36.30 and gold lost $12 to $1233.

Treasuries saw notable strength early after a report showed Retail Sales down .1% for February. Making matters worse, January numbers were revised down to -.4%, from an initial reading of +.2%.

However, Treasuries have pared gains following mixed readings from a round of other data including, the Producer Price Index (PPI), the New York Empire Index, and the NAHB Housing Index. After falling to a morning low of 1.92%, the yield on the benchmark ten-year Treasury is back up to 1.96%.

Seven of ten market sectors on Wall Street are lower, with Energy (XLE), Basic Materials (XLB), and Healthcare (XLV) seeing the biggest losses. Consumer Staples (XLP) and Utilities (XLU) are seeing modest gains.

On the options front, trading is slow for a second day. 12.8 million contracts traded across the exchanges Monday, making it one of the slowest of 2016. Roughly 2.5 million calls and 2.5 million puts traded through the first two hours of trading Tuesday. Projected volume is roughly 13 million and 20% below the one-month daily average. Apple (AAPL) May 110 calls, Bank of America (BAC) Apr 1st Weekly 14 calls, and CBOE Volatility Index (.VIX) Apr 16 puts are actively traded.

VIX is up .26 to 17.28 and there hasn’t been much volatility so far this week, as the S&P 500 traded in a 13-point range Monday and is seeing slow action into midday today. It is another Super Tuesday for Presidential hopefuls with key Republican races taking place in Ohio and Florida. The tone of trading is also wait-and-see ahead of the FOMC rate announcement tomorrow afternoon.

Indeed, it’s not surprising to see a bit of cautious trading in the equities market after the one-month 10% rally in the S&P 500. In addition, oil prices have been a key driver for the equities market during the recent advance, as crude bottomed out the same day as the S&P 500 on February 11th. As we can see from the weekly chart above, crude oil is down this week and has now erased the gains from the week before. That, in turn, is weighing on equities as well.

On the technical front, however, the S&P 500’s ability to make a decisive move above 2,001 last week is encouraging. 2009 is an obvious support/resistance area, as is yesterday’s high of 2025 (coincides with a 200-day moving average). Support sits around the 2000 level and then 1980.

Looking forward, the FOMC meeting tomorrow is a short-term catalyst. Fed officials are not expected to announce any changes in rates and will largely leave its forecast unchanged. Their interest rate forecast, however, is likely to change – from four more .25% rate hikes this year to only three, which already seems to be consistent with market expectations.

However, it is crude oil that is wagging the dog lately. Therefore, Weekly Inventory numbers tomorrow have the potential to shake things up a bit as well. And don’t forget that Friday is a Quad Witch expiration for March futures and options and these two days of quiet trading are likely to be followed by a notable uptick in activity once the FOMC announcement has passed.