3-24-16 – Where is the market going?

Stocks opened lower and are in the red into midday on light volumes ahead of the Good Friday holiday. The S&P 500 is down 9.50 points to 2027.21 and almost precisely midway between today’s range of 2022.49 to 2032.48.

Treasury bonds are steady on weak Durable Goods data after scoring solid gains over the past few days and the yield on the benchmark ten-year remains near 1.88%.

Crude oil is lower again and, after losing nearly $1 to $38.85 today, has dropped $2.15 on the week. Gold lost another $3 to $1221 and adding to the $25 drop suffered Wednesday.

Yet, on Wall Street, it’s the Financials (XLF) pacing the decline. Basic Materials (XLB) and Industrials (XLI) are also seeing relative weakness. The Utility (XLU) sector is the only one bucking the bearish trend.

CBOE Volatility Index (VIX) touched a one-week high of 16.44 and is up .69 to 15.63. Overall trading volumes are light heading into the three-day weekend. Roughly 3.2 million calls and 3.6 million puts traded across the exchanges. Projected volume of 15 million is 5% less than the one-month daily average.

VIX May 25 and 28 calls are the most actives, driven by May 25 – 28 call spreads. More than 60K traded at both strikes. iShares Emerging Markets Fund (EEM) Jun 35.5 calls have also traded more than 60K. Meanwhile, Micron (MU) Jul 8 puts, Freeport McMoran (FCX) Apr 10 calls, and GE May 30 puts are among actively traded single stock options.

Overall sentiment has turned a bit more cautious. As evidence, VIX is at its best levels of the week and this morning’s total put call ratio of 1.13 (3.6M/3.2M) is a bit elevated compared to recent readings.

However, there are hardly any signs of panic. While the S&P 500 is down today and has lost 23 points in the past two days, the decline comes after a 12.5% rally off February 11th lows. Therefore, a period of consolidation or a dip was perhaps a bit overdue.

But the recent weakness might not be so easily brushed aside if it continues into next week. The dollar is up for a fifth day and that, in turn, weighs on oil and also the earnings for multi-national companies. It is also a reflection of changing rate expectations as Fed members Evans, Bullard, and Williams have signaled a bit more hawkish stance this week. The release of minutes from the March 16th meeting on April 6 might hold a bit more sway than usual for that reason.

Until then, the economic calendar is chock full of data including key jobs data a week from tomorrow. And, as has been duly noted here in recent weeks, the outlook for earnings during the first half of 2016 remains negative. Plenty of event risk lies ahead.

Expect slow trading this afternoon into the holiday weekend. Then keep an eye on the S&P 500 and support at the 200-day moving average (chart above) early next week. Today’s low of 2022 is also support, as is 2010. On the upside, expect short-term resistance near 2035 and 2050.