3-28-16 – Where is the market going?

Monday Recap

Stocks are drifting lower in slow trade Monday after the three-day weekend. The S&P 500 has traded in a narrow 9-point range and is up 4.19 points to 2043.13.

Treasury bonds are steady on a light day of economic data and ahead of commentary from Fed Chairman Janet Yellen tomorrow. The yield on the benchmark ten-year has eased to 1.87%, from 1.9% late last week.

Crude oil is off 35c to $3.12 and gold gave up $4.50 to $1217.

CBOE Volatility Index (.VIX) is up .52 to 15.26 and, with many European banks still on holiday, options volumes are running at one of the slowest paces of the year. Roughly 2.8 million calls and 2.2 million puts traded through the first few hours. Projected volume of 9.1 million for the day is 40% below the one-month daily average.

VIX May 25and 28 calls are the most actives, driven by spread trading. More than 60K traded in each.

The Week Ahead

Another reason for the light volume Monday is probably due to the fact that this week’s economic calendar is backend loaded. A report on Consumer Confidence is due out tomorrow and ADP gives a peek at monthly jobs numbers Wednesday morning. Then Jobless Claims and Chicago PMI will set the tone for trading Thursday morning.

However, Friday is the big day for data and the flood of reports includes ISM Manufacturing, Construction Spending, Univ of Michigan Sentiment, and, of course, the Labor Department’s key monthly jobs report. Economists currently expect the payroll data to show the economy adding 200,000 jobs for March and the rate of unemployed remaining unchanged at 4.9%.

China’s manufacturing data Thursday will likely have impact on global equities markets as well.

On the corporate news front, it’s a light week for earnings. Homebuilder Lennar (LEN), due tomorrow, and LuluLemon (LULU), Micron Tech (MU), and Carnival Cruise (CCL) Wednesday are among the few reports of significance.

Monthly auto and truck sales numbers come into play Friday.

The tone of trading is possibly a bit “wait-and-see” Monday amid uncertainty ahead of economic news later in the week. Recall that last week, the dollar had suffered a series of advances and that, in turn, seemed to stem the recent rise in crude oil and equities markets.

Moreover, the buck (as measured by the Powershares Bullish Dollar Fund) is lower today and the daily chart (below) shows it is still in downtrend with a possible bearish crossover between the 50 and 200-day moving averages developing.

But it’s interesting to note that there has been a notable buying of UUP Jun 26 calls today, with 26.5K traded, suggesting that some players are positioning for another leg higher in the ETF.

Suffice it to say, the short-term action in the dollar should not be overlooked amid the uncertainty as an explosive move could potentially stir up volatility in other financial markets as well.

As for the S&P 500, today’s highs of 2040 represent short-term resistance, as does 2043 and 2050. On the downside, look for support at 2034, 2022, and along the 200-day moving average.