3-17-16 – Where is the market going?

Stocks erased morning losses and turned positive into midday on St. Patrick’s Day. The S&P 500 is up 6.59 points to 2033.81 and near session highs.

Treasury bonds have also turned higher in the wake of yesterday’s FOMC policy announcement and following a round of mixed economic data Thursday morning. After briefly touching 2% Wednesday, the yield on the benchmark ten-year has eased to 1.91%.

Crude oil gained another $1.25 to $41.25 and gold surged $35 to $1265.

On Wall Street, eight of ten market sectors are higher, led by Industrials (XLI), Basic Materials (XLB), and Energy (XLE). Healthcare (XLV) is seeing notable weakness.

CBOE Volatility Index (.VIX) is down nearly 1 point, or 6.4%, and taking a stab at the 14 level for the first time since October.

Meanwhile, overall options volumes have been picking up since the FOMC announcement Wednesday afternoon and into the Quadruple Witching March expiration. Roughly 4.6 million calls and 3.4 million puts had traded through 11:00 CT Thursday. Projected volume for the day is 17 million and 10% above the one-month daily average.

Indeed, the relatively low total put-to-call ratio of .74 today (3.4M/4.6M) and the multi-month lows in VIX reflect the bullish underlying sentiment that continues to drive the S&P 500 to two-month highs. It is now up 11.2% year-to-date and within striking distance of 2016 highs.

The rebound in crude oil prices has been an important driver for the energy sector and the S&P. Meanwhile, the takeaway from yesterday’s FOMC announcement and post-meeting press conference is that Federal Reserve policy is data dependent. They were behind the curve and have no confirmed market expectations that no more than two more rate hikes are likely in 2016.

And it’s the ongoing slide in the buck that is helping lift crude and providing fodder for gold bugs. The daily chart of the Bullish Dollar Fund below shows shares falling to multi-month lows and, meanwhile, the potential for a bearish crossover between the 50 and 200-day moving averages. Further dollar weakness ahead?

For equities, the grind higher in the S&P 500 has taken out key resistance areas and now support is likely at be around today’s lows of 2022 and 2020 (200-day moving average). 2005 and 2000 are also areas of support. The most obvious resistance is likely to be 2044 and near the closing print for 2015.

Now that the Fed meeting has passed, the next short-term catalysts are the dollar and crude oil. Next week’s economic calendar is light with only housing data, durable goods, and GDP numbers to guide action in the bond pits. Then focus turns to the flood of data due in early-April and then it won’t be long before we started talking about the dismal first earnings reports that will flood the market in the second half of April.

Until then, market participants appear to be anticipating quiet trading and a steady grind higher in the equities market driven by low rates, dollar weakness, and higher crude oil prices.