3-22-16 – Where is the market going?

Stocks opened lower amid broader losses across global equities markets, but have pared most of the losses and are trading in mixed fashion midday Tuesday. The S&P 500 is down .60 to 2051 and 10 points from session lows.

With no economic data to guide trading, Treasury bonds saw a modest flight-to-safety bid on reports of multiple terror attacks around Brussels and the yield on the benchmark ten-year eased to 1.90%.

Similarly, gold gained $11 to $1255. However, crude oil dropped 22c to $41.30.

On Wall Street, five of ten market sectors are lower. While Basic Materials (XLB) and Consumer Staples (XLP) were weighing, Healthcare (XLV) and Industrials (XLI) are seeing relative strength.

CBOE Volatility Index (.VIX) hit a morning high of 14.76 and is up .41 to 14.20. Trading in the options market is light for a second day. Roughly 2.5 million calls and 2.6 million puts traded across the exchanges through the first two hours. Projected volume for the day is slightly more than 12 million and 20% below the one-month average.

Indeed, the senseless killings of innocents in Belgium is having minimal market impact as the larger theme of falling volumes and volatility continues. It’s a light week for economic data and a lot of event risk has passed since the March 16th FOMC meeting.

The Quad Witch Friday certainly stirred up more trading activity Friday, but not much volatility. The average daily move in the S&P 500 so far in March is about 10 points and less than half the average daily move of 21 points in the first two months of the year.

The big decline in actual volatility across global equity markets helps to explain why VIX is at half the levels seen on February 11th. It’s pattern that it also being seen across some important commodities and currency markets as well. We can see in the chart, for instance, the freefall in VIX for the Oil Markets (OVX) in recent weeks. It is near 2016 lows.

The change in risk or volatility perceptions is a powerful driver helping to drive the equities markets higher. In addition, the recent trend has turned into a slow grind with, like today, where market sectors churn in mixed fashion from one day to the next.

Looking forward, the economic calendar picks up noticeably after the three-day weekend and includes key jobs data next Friday. Then focus to the earnings reporting season, which is not likely to offer much fodder for the bulls because, according to Zack’s, total earnings for the first quarter are expected to be down 10% for S&P 500 companies and total growth will remain negative through the first half of the year.

Until then, the market’s underlying tone has improved as volatility has receded and the S&P 500 is in positive territory YTD. It has support at 2045 and 2040. Beyond that, the 2025 level and 200-day moving average come into play. On the upside, look for resistance at 2051 and this week’s highs of 2054, then 2060.